<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended: July 31, 1998
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to _________
Commission File Number 0-23255
COPART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2867490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 E. SECOND STREET 94510
BENICIA, CALIFORNIA (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (707) 748-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock
(TITLE OF CLASS)
-------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of October 9, 1998 was $172,557,000 based upon the last
sales price reported for such date on the Nasdaq National Market. For purposes
of this disclosure, shares of Common Stock held by persons who hold more than
5% of the outstanding shares of Common Stock and shares held by officers and
directors of the registrant, have been excluded in that such persons may be
deemed to be affiliates. This determination is not necessarily conclusive for
other purposes.
At October 9, 1998 registrant had outstanding 13,303,160 shares of
Common Stock.
----------------------
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
registrant's definitive proxy statement for the Annual Meeting of Shareholders
to be held on December 8, 1998 (the "Proxy Statement").
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C>
ITEM 1 - Business
General 3
The Salvage Vehicle Auction Industry 3
Industry Participants 3
The Insurance Adjustment and Vehicle Auction Process 4
Operating Strategy 5
Growth Strategy 8
Supply Arrangements and Supplier Marketing 10
Buyers 10
Competition 11
Environmental Matters 11
Governmental Regulations 13
Management Information System 14
Employees 14
Factors Affecting Future Results 14
Executive Officers of the Registrant 16
ITEM 2 - Properties 17
ITEM 3 - Legal Proceedings 18
ITEM 4 - Submission of Matters to a Vote of Security Holders 18
PART II
ITEM 5 - Market Registrant's Common Equity and Related
Stockholder Matters 19
ITEM 6 - Selected Financial Data 20
ITEM 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
ITEM 7A - Quantitative and Qualitative Disclosures About
Market Risk 26
ITEM 8 - Financial Statements and Supplementary Data 27
ITEM 9 - Changes in and Disagreements with Accountants on
Accounting And Financial Disclosure 27
PART III
ITEM 10 - Directors and Executive Officers of the Registrant 27
ITEM 11 - Executive Compensation 27
ITEM 12 - Security Ownership of Certain Beneficial Owners
and Management 27
ITEM 13 - Certain Relationships and Related Transactions 27
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 28
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK
FACTORS SET FORTH BELOW OR INCORPORATED BY REFERENCE INTO THIS REPORT. THE
COMPANY HAS ATTEMPTED TO IDENTIFY FORWARD-LOOKING STATEMENTS BY PLACING AN
ASTERISK IMMEDIATELY FOLLOWING THE SENTENCE OR PHRASE THAT CONTAINS THE
FORWARD-LOOKING STATEMENT.
GENERAL
Copart, Inc. ("Copart" or the "Company") provides vehicle suppliers,
primarily insurance companies, with a full range of services to process and
sell salvage vehicles through auctions, principally to licensed dismantlers,
rebuilders and used vehicle dealers. Salvage vehicles are either damaged
vehicles deemed a total loss for insurance or business purposes or are
recovered stolen vehicles for which an insurance settlement with the vehicle
owner has already been made. The Company offers vehicle suppliers a full
range of services which expedite each stage of the salvage vehicle auction
process and minimize administrative and processing costs. The Company
generates revenues primarily from auction fees paid by vehicle suppliers and
vehicle buyers as well as related fees for services such as towing and
storage.
During fiscal year ending July 31, 1998, Copart has acquired six
additional salvage vehicle auction facilities and opened three new
facilities. Acquisitions include facilities in Avon, Minnesota; Columbia,
South Carolina; Mobile, Alabama; San Diego, California; Des Moines, Iowa and
Detroit, Michigan. New salvage vehicle auction sites have been opened in
Orlando, Florida; Raleigh, North Carolina and Las Vegas, Nevada. In addition,
Copart has expanded its operations at six existing facilities with the
acquisition of over 30 acres of adjacent land.
Copart was organized as a California corporation in 1982. The
Company's principal executive offices are located at 5500 E. Second Street,
Benicia, California 94510, and its telephone number at that address is (707)
748-5000.
THE SALVAGE VEHICLE AUCTION INDUSTRY
Although there are other suppliers of salvage vehicles, such as
financial institutions, vehicle leasing companies, automobile rental
companies and automobile dealers, the primary source of salvage vehicles to
the salvage vehicle auction industry historically has been insurance
companies. Of the total number of vehicles processed by the Company in fiscal
1998, approximately 89% were obtained from insurance company suppliers. While
there has been substantial consolidation of the salvage vehicle auction
industry, the Company believes opportunities continue to exist either to open
or acquire facilities. *
INDUSTRY PARTICIPANTS
The primary businesses and/or individuals involved in the salvage
vehicle auction industry include:
SALVAGE VEHICLE AUCTION COMPANIES. Salvage vehicle auction companies such as
the Company generally either (i) auction salvage vehicles on consignment, for
a fixed fee or for a percentage of the sales price of the vehicle or (ii)
purchase vehicles from vehicle suppliers at a formula price, based on a
percentage of the vehicles' estimated pre-loss value, or "actual cash value"
("ACV"), and auction the vehicles for their own account.
- -------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
3
<PAGE>
VEHICLE SUPPLIERS. The primary suppliers of salvage vehicles are insurance
companies. Additional suppliers include automobile dealers, automobile rental
companies, financial institutions and vehicle leasing companies.
VEHICLE BUYERS. Vehicle dismantlers, rebuilders, repair licensees and used
car dealers are the primary buyers of salvage vehicles. Vehicle dismantlers,
which the Company believes are the largest group of salvage vehicle buyers,
either dismantle a vehicle and sell parts individually or sell the entire
vehicle to rebuilders, used automobile dealers or the public. Vehicle
rebuilders and vehicle repair licensees repair salvage vehicles for sale to
used car dealers and noncommercial buyers. Used automobile dealers will
generally purchase directly from a salvage vehicle auction facility,
recovered stolen or slightly damaged vehicles.
THE INSURANCE ADJUSTMENT AND VEHICLE AUCTION PROCESS
Following an accident involving an insured vehicle, the damaged
vehicle is generally towed to a towing company or a vehicle repair facility
for temporary storage pending insurance company examination. The vehicle is
inspected by the insurance company's adjuster, who estimates the costs of
repairing the vehicle and gathers information regarding the damaged vehicle's
mileage, options and condition in order to estimate its ACV. The insurance
company's adjuster determines whether to pay for repairs or to classify the
vehicle as a total loss, based upon the adjuster's estimate of repair costs
and the vehicle's salvage value, as well as customer service considerations.
If the cost of repair is greater than the ACV less the estimated salvage
value, the insurance company generally will classify the vehicle as a total
loss. The insurance company will thereafter assign the vehicle to a salvage
auction company, such as the Company, settle with the insured vehicle owner
and receive title to the vehicle.
Factors that vehicle suppliers consider when selecting a salvage
vehicle auction company include (i) the anticipated percentage return on
salvage (e.g., gross salvage proceeds, minus vehicle handling and selling
expenses, divided by the ACV); (ii) the services provided by the salvage
vehicle auction company and the degree to which such services reduce
administrative costs and expenses; (iii) the ability to provide service
across a broad geographic area; (iv) the timing of payment; and (v) the
financial and operating history of the salvage vehicle auction company.
In disposing of a salvage vehicle, a vehicle supplier assigns the
vehicle to a salvage vehicle auction company with which it has a contractual
or other relationship. Upon receipt of the pick-up order, which is conveyed
by facsimile, telephone or computer, the salvage vehicle auction company
dispatches one of its transporters or a contract towing company to transport
the vehicle to the salvage vehicle auction company's facility. As a service
to the vehicle supplier, the salvage vehicle auction company customarily pays
advance charges (reimbursable charges paid by the Company on behalf of
vehicle suppliers) to obtain the subject vehicle's release from a towing
company or vehicle repair facility. Typically, advance charges are paid on
behalf of the vehicle supplier and are recovered by the salvage vehicle
auction company upon sale of the salvage vehicle.
After being received and evaluated at the salvage vehicle auction
facility, the vehicle remains in storage and cannot be sold at an auction
until ownership documents are transferred from the insured vehicle owner and
title to the vehicle is cleared through the appropriate state's motor vehicle
regulatory agency (or "DMV"). If a vehicle is a total loss (as determined by
the insurance company), it can be sold in most states upon settlement with
and receipt of title documents from the insured. Total loss vehicles may be
sold in most states only after obtaining a salvage certificate from the DMV;
however, in some states only a bill of sale from the insured is required.
Upon receipt of the appropriate documentation from the state DMV or the
insured, which is generally received within 45 to 60 days of vehicle pick-up,
the salvage vehicle auction company auctions the vehicle. Vehicles are sold
primarily through live auctions, which are typically held weekly or biweekly
at each facility, and occasionally by sealed bid auctions.
4
<PAGE>
At the Company's facilities, the vehicles to be auctioned are moved
from storage areas to a sales area for the convenience of the buyers. At the
Company and many other facilities, the auctioneer works from a bus that
proceeds through the sales area from vehicle to vehicle. Certain vehicles
that are driveable are driven through an auction display area. Minimum bids
are occasionally set by vehicle suppliers on high-value and specialty cars,
and often facilities have standing guaranteed bids of between $25 to $50 per
vehicle from local dismantlers for "junk" vehicles.
Once a vehicle is sold at auction, the buyer typically must pay by
cashier's check, money order or approved company check and take possession of
the sold vehicle within two to five days. After payment for the vehicle, the
buyer receives the appropriate title documentation. In addition to the
awarded bid price, the buyer pays any fees or other charges assessed by the
salvage vehicle auction company, such as post-sale processing, towing and
storage fees. The salvage vehicle auction company thereafter remits to the
insurance company the vehicle sales proceeds, less advance charges and any
fees for its towing, storage and selling of the vehicle pursuant to the
arrangement between the insurance company and the salvage vehicle auction
company. The insurance proceeds check will typically be accompanied by copies
of invoices for deducted fees and advance charges, and copies of title and
related DMV documents. The insurance company may then close its claims file
with copies of all records of the transaction.
OPERATING STRATEGY
The Company's operating strategy is to increase salvage vehicle
volume from new and existing vehicle suppliers by (i) designing sales
programs tailored to a vehicle supplier's particular needs, (ii) offering a
full range of services that reduce the administrative time and costs of the
salvage vehicle auction process, such as computerized monitoring and tracking
of salvage vehicles, (iii) developing a growing base of buyers, (iv)
providing salvage vehicle auction facilities throughout broad geographic
regions, and (v) offering insurance companies the ability to contract for
vehicle salvage services on a regional or national basis. The Company
believes its flexible, service-oriented approach promotes the establishment
and maintenance of strong relationships with vehicle suppliers, which are an
integral factor in competing effectively in the salvage vehicle auction
industry.
FLEXIBLE VEHICLE PROCESSING PROGRAMS
At the election of the vehicle supplier, the Company auctions
vehicles (i) pursuant to its Percentage Incentive Program, (ii) on a fixed
fee consignment basis, (iii) on a purchase basis or (iv) on a basis which
combines the consignment and purchase bases in order to meet a vehicle
supplier's particular needs. Based upon the Company's database of historical
returns on salvage vehicles and information provided by vehicle suppliers,
the Company works with the vehicle supplier to design a program that
maximizes the net returns on salvage vehicles. Due to, among other factors,
including the timing and size of new acquisitions, market conditions, and
acceptance of a particular program by vehicle suppliers, the percentage of
vehicles processed under each of its programs may vary in future periods.*
The three primary sales programs are as follows:
PERCENTAGE FEE CONSIGNMENT. Copart introduced its Percentage Incentive
Program, (the "PIP",) as an innovative processing program to better serve the
needs of certain vehicle suppliers. Under the PIP, Copart agrees to sell at
auction all of the salvage vehicles of a vehicle supplier in a specified
market for predetermined percentages of vehicle sales prices. Because
Copart's revenues under the PIP are directly linked to the vehicle's auction
price, Copart has an incentive to actively merchandise the vehicles in order
to maximize the net return on salvage vehicles. Under the PIP, Copart
provides the vehicle supplier, at Copart's expense, with transport of the
vehicle to the nearest Company facility, storage at its facilities for
- -----------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
5
<PAGE>
up to 90 days, and DMV processing. In addition, Copart provides merchandising
services such as covering/taping openings to protect vehicle interiors from
weather, adding tires if needed, washing vehicle exteriors, vacuuming
vehicle interiors, cleaning and polishing dashboards and tires, making keys
for driveable vehicles and operating "drive-through" sales auctions of
driveable vehicles. The Company believes its merchandising increases the
sales prices of salvage vehicles, thereby increasing the return on salvage
vehicles to both vehicle suppliers and the Company. In fiscal 1998,
approximately 46% of all salvage vehicles processed by Copart were processed
under the PIP.
FIXED FEE CONSIGNMENT. Under the fixed fee consignment program, the Company
sells vehicles for a fixed consignment fee, generally $50 to $150 per
vehicle. In addition to the consignment fees, the Company usually charges
for, or includes in its fee to the vehicle supplier, the cost of transporting
the vehicle to the Company's facility, storage of the vehicle, and other
incidental costs. Approximately 53% of all salvage vehicles processed by
Copart in fiscal 1998 were processed under the fixed fee consignment program.
PURCHASE CONTRACT. Under a purchase contract arrangement, the Company agrees
to buy salvage vehicles of a vehicle supplier in a specific market. The
vehicles generally are purchased for a pre-determined percentage of the
vehicle's ACV and then resold by the Company for its own account. Under a
purchase contract, the Company usually provides vehicle suppliers with free
towing to its premises and storage at its facilities for up to 90 days.
Approximately 1% of all salvage vehicles processed by the Company during
fiscal 1998 were processed under purchase contracts.
BROAD ARRAY OF SERVICES
The Company offers vehicle suppliers a full range of services which
expedite each stage of the salvage vehicle auction process and minimize
administrative and processing costs:
SALVAGE LYNK-TM-. Copart's proprietary software program, Salvage Lynk, provides
a vehicle supplier with on-line access to retrieve information on any of its
salvage vehicles being processed at Copart throughout the claims adjustment
and auction process. Copart furnishes each user of Salvage Lynk with software
and a computer terminal, if necessary, which enables the user to monitor each
stage of the salvage vehicle auction process, from pickup to payment and the
eventual auction of the vehicle, from each user's own office.
COPART ACCESS. In August of 1998, the Company introduced Copart Access - an
Internet based service for vehicle suppliers. On the Access web pages at
Copart.com, suppliers can enter assignments, check auction calendars, view
photos and details of their vehicles in storage, view and reprint invoices
and body-shop receipts, run a Pro Quote salvage estimate and see graphs of
the historic performance of their vehicles at Copart auctions.
MONTHLY REPORTING. Upon request, the Company provides vehicle suppliers with
monthly reports that summarize all of their salvage vehicles processed by the
Company. These reports are able to track the vehicle suppliers' gross and net
return on each vehicle, service charges, and other data that enable the
vehicle suppliers to more easily administer and monitor the salvage vehicle
disposition process. In addition, when the suppliers receive payment, they
also receive a detailed closing invoice, noting any advance charges paid by
the Company on their behalf. Copart's vehicle suppliers can obtain all of
their payment and invoice information on-line through Salvage Lynk.
DMV PROCESSING. The Company offers employees of vehicle suppliers training on
DMV document processing and has prepared a manual that provides step-by-step
instructions to expedite title document processing. In addition, the
Company's computers provide a direct link to the California, Texas and New
York DMV computer systems. This training on DMV procedures and, in
California, Texas and New York, the direct link to the DMV computer system,
allow vehicle suppliers to expedite title searches and the processing of
paperwork, thereby facilitating title acquisition from the insured vehicle
owner and consequently shortening the time period in which vehicle suppliers
can receive their salvage vehicle
6
<PAGE>
proceeds. Under California's license registration fee rebate program, the
Company, for a fee, assists participating vehicle suppliers in calculating,
applying for and obtaining rebates of unused owner registration and license
fees. The net rebates are delivered and paid to the vehicle supplier.
VEHICLE INSPECTION STATION. The Company offers certain of its major insurance
company suppliers office and yard space to house a Vehicle Inspection Station
("VIS") on-site at its auction facilities. At July 31, 1998, there were 29
VIS's at 23 of the Company's facilities. An on-site VIS provides an insurance
company a central location to inspect potential total loss vehicles and
reduces storage charges that otherwise may be incurred at the initial storage
and repair facility. The Company believes that providing an on-site VIS
enables the Company to improve the level of service it provides to such
insurance companies.
VEHICLE PREPARATION AND MERCHANDISING. The Company has developed
merchandising techniques designed to increase the volume and sale price of
salvage vehicles. Under the PIP, Copart provides vehicle weather protection,
including shrink-wrapping vehicles to protect them from inclement weather,
cleaning and drive-through sales of driveable vehicles, which the Company
believes enhance salvage vehicle presentation and increase vehicle sales
prices. Direct mailings are also made to select vehicle buyers, identified
through the Company's database of buyers, to alert them to the availability
of salvage vehicles in which they might be interested.
SALVAGE BROKERAGE NETWORK. In response to requests of vehicle suppliers to
coordinate disposal of their vehicles outside of Copart's current areas of
operation, Copart has developed a national network of third party salvage
vehicle auction facilities that process vehicles under the direction of
Copart. Copart's customers benefit from being able to monitor and obtain
information on virtually all of their salvage vehicles at any place in the
United States through Salvage Lynk, as opposed to dealing with numerous
salvage auction facilities across the country. Copart receives revenues from
the sale of vehicles processed by members of these networks, net of
applicable fees of the facility which processed the vehicle and without
buyer's fees.
TRANSPORTATION SERVICES. The Company maintains a fleet of multi-vehicle
transport trucks at most of its yards as well as contracts for vehicle
transports at most facilities.
BUYER NETWORK. The Company maintains a database of thousands of registered
buyers of salvage vehicles in the vehicle dismantling, rebuilding, repair,
and/or resale business. Copart's database of buyers also includes vehicle
preference and purchasing history by buyer. This data enables a local
facility manager to notify key prospective buyers throughout the region or
country of the sale of salvage vehicles that may match their preferences.
Sales notices listing the salvage vehicles to be auctioned on a particular
day and location are made available at each auction and on the internet. Each
notice details for each vehicle, among other things, the year and make of the
vehicle, the description of the damage, the status of title and the order of
the vehicle in the auction.
The Company seeks to establish a loyal and growing customer base of
salvage vehicle buyers by providing a variety of value-added programs and
services. Copart has initiated its Buyers Plus Program, which includes a
Copart Silver and Gold Card frequent buyer program designed to attract
high-volume commercial customers by providing them with frequent buyer
credits to acquire promotional merchandise, and extra services such as
express check-in procedures and streamlined paperwork processing services.
Copart also periodically provides free prizes and giveaways to promote
auction attendance.
MULTIPLE LOCATIONS. The Company had a total of 60 facilities in 31 states at
July 31, 1998. The Company's multiple locations provide vehicle suppliers
certain advantages, including (i) a reduction in administrative time and
effort, (ii) a reduction in overall towing costs, (iii) the ability for
adjusters to make inspections of vehicles in their area, as opposed to
traveling long distances, (iv) the convenience to the insurance company's
customers of inspecting their vehicles and retrieving any personal belongings
left in the vehicle and (v) access to buyers in a broad geographic area.
7
<PAGE>
GROWTH STRATEGY
The Company's growth strategy is to (i) open or acquire new
facilities, (ii) increase salvage vehicle volume from new and existing
suppliers, (iii) increase revenues and profitability at its existing
facilities, and (iv) pursue regional and national supply agreements with
vehicle suppliers.* While there has been substantial consolidation of the
salvage vehicle auction industry, the Company believes opportunities exist to
either open or acquire new facilities.*
EXISTING MARKETS. The Company attempts to increase vehicle volume from
existing and new suppliers by promoting its ability to increase a supplier's
net returns and to provide a broad selection of services to suppliers. The
Company also believes that a portion of its sales growth in existing markets
has been attributable to recommendations from branch offices of insurance
company suppliers to other branch offices of the same insurance company.
Because a number of the Company's current insurance company suppliers are
large national companies with branch offices throughout the country, the
Company believes that such referrals provide the potential for future growth
in sales in existing, as well as new, geographic markets.*
NEW FACILITIES. Since its formation in 1982, Copart has expanded, primarily
through acquisitions, from a single facility in Vallejo, California, to an
integrated network of 60 facilities located in California, Texas, Arkansas,
Oklahoma, Kansas, Washington, Oregon, Georgia, Missouri, New York,
Connecticut, Florida, Pennsylvania, New Jersey, Massachusetts, Maryland,
Ohio, Illinois, Minnesota, Wisconsin, Mississippi, North Carolina, Indiana,
Arizona, Louisiana, Utah, Nevada, Alabama, South Carolina, Iowa and Michigan.
The Company's strategy is to offer integrated service to vehicle
suppliers on a regional or national basis by acquiring or opening salvage
facilities in new markets as well as in regions currently served by the
Company. The Company believes that by either opening or acquiring new
operations in such markets, it can capitalize on certain operating
efficiencies resulting from, among other things, the reduction of duplicative
overhead and the implementation of the Company's operating procedures.*
During fiscal 1996, the Company acquired two facilities in or near Jackson,
Mississippi and El Paso, Texas, and opened five new facilities in or near
Charlotte, North Carolina; Jacksonville, Florida; Van Nuys, California;
Indianapolis, Indiana and Phoenix, Arizona. During fiscal 1997, the Company
acquired two facilities in or near Baton Rouge, Louisiana and Salt Lake City,
Utah and opened two new facilities in or near Hammond, Indiana and
Woodinville, Washington. During fiscal 1998, the Company acquired six
facilities in or near Avon, Minnesota; Columbia, South Carolina; Mobile,
Alabama; San Diego, California; Des Moines, Iowa and Detroit, Michigan and
opened three new facilities in or near Orlando, Florida; Raleigh, North
Carolina and Las Vegas, Nevada. Copart has expanded its operations at six
existing facilities with the acquisition of over 30 acres of adjacent land.
In addition, the Company believes that the establishment of a national
presence both enhances the ability of a salvage vehicle auction company to
enter into state, regional or national supply agreements with vehicle
suppliers and to develop name recognition with vehicle suppliers and buyers.*
The Company, in the normal course of its business, maintains an active
dialogue with acquisition candidates of various sizes.
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers to the PIP, which
typically results in higher net returns to vehicle suppliers and higher fees
to the Company than standard fixed fee consignment programs and (iii)
initiating the Company's value-enhancing merchandising procedures. * In
addition, the Company attempts to effect cost efficiencies at each of its
- ------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
8
<PAGE>
acquired facilities through, among other things, implementing the Company's
operating procedures, integrating the Company's management information
systems and, when necessary, redeploying personnel.
Before entering a new market, the Company seeks to establish vehicle
supply arrangements with one or more of the major insurers in the targeted
market. Often this is accomplished by targeting an insurance company in that
market with whom the Company does business in other geographic areas.
Additional factors which the Company considers when acquiring or opening a
new vehicle auction facility include relationships with vehicle suppliers,
market size, supply of salvaged vehicles, quality and location of facility,
growth potential and the region's potential for additional markets.
The Company strives to integrate its new facilities with minimum
disruption to the facility's existing suppliers. Consistent with industry
practice, most salvage vehicle auction companies, including those acquired by
the Company, operate exclusively on a fixed fee consignment basis. The
Company works with suppliers to tailor a vehicle disposition method to fit
their needs. Copart's fee structures and service programs for buyers are
implemented at a new facility gradually, providing Copart the opportunity to
gain knowledge of, and respond to, the existing market. The Company typically
attempts to retain all or most of the management at acquired facilities and
trains management at acquired facilities by rotating one or two managers from
other Company facilities through the new facility for short assignments. If a
new facility is opened or if management of an acquired facility needs
assistance in converting to the Copart system, the Company will assign an
integration team to the new facility, and, where necessary, transfer an
experienced facility manager.
The following chart sets forth facilities acquired or opened by
Copart since the beginning of fiscal 1996, through July 31, 1998.
<TABLE>
<CAPTION>
ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
- -------- ------------ -----------------------
<S> <C> <C>
Detroit, Michigan July 1998 Michigan, Northern Ohio
Des Moines, Iowa June 1998 Iowa, Eastern Nebraska
San Diego, California May 1998 San Diego, California
Mobile, Alabama May 1998 Alabama, Southeast Mississippi, Florida
Panhandle
Las Vegas, Nevada May 1998 Southern Nevada, Northwest Arizona
Columbia, South Carolina April 1998 South Carolina, Eastern Georgia
Orlando, Florida June 1998 Central Florida
Raleigh, North Carolina March 1998 Eastern North Carolina,Virginia
Avon, Minnesota November 1998 Northern Minnesota, Eastern North and South
Dakota
Salt Lake City, Utah March 1997 Utah, Western Colorado
Baton Rouge, Louisiana January 1997 Southern Louisiana, Western Mississippi
Hammond, Indiana October 1996 Chicago, Southern Illinois, Indiana
Woodinville, Washington September 1996 Washington
Phoenix, Arizona February 1996 Arizona
El Paso, Texas December 1995 Southwest Texas, Southern New Mexico
Van Nuys, California November 1995 Greater Los Angeles area
Jacksonville, Florida November 1995 Northeast Florida
Indianapolis, Indiana September 1995 Indiana
Jackson, Mississippi August 1995 Mississippi, Western Louisiana
Charlotte, North Carolina August 1995 North Carolina
</TABLE>
9
<PAGE>
SUPPLY ARRANGEMENTS AND SUPPLIER MARKETING
The Company currently obtains salvage vehicles from thousands of
vehicle suppliers, including local and regional offices of such suppliers. In
fiscal 1998, vehicles supplied by its single largest supplier accounted for
approximately 16% of the Company's revenues. The Company's agreements with
this and other vehicle suppliers are either oral or written agreements that
generally are subject to cancellation by either party upon 30 to 90 days'
notice.
The Company typically contracts with the regional or branch office
of an insurance company or other vehicle supplier. The agreements are
customized to each vehicle supplier's particular needs, often providing for
disposition of different types of salvage vehicles by differing methods.
Although the Company does not have written agreements with all of its vehicle
suppliers, the Company has arrangements to process the vehicles generated by
such suppliers. Such contracts or arrangements generally provide that the
Company will sell virtually all total loss and recovered stolen vehicles
generated by the vehicle supplier in a designated geographic area. The
Company's written agreements with vehicle suppliers are typically subject to
cancellation by either party upon 30 to 90 days' notice. There can be no
assurance that existing agreements will not be canceled or that the terms of
any new agreements will be comparable to those of existing agreements.
The Company markets its services to vehicle suppliers through an
in-house sales force which utilizes mailing of Company sales literature,
telemarketing and follow-up personal sales calls, and participation in trade
shows and vehicle and insurance industry conventions. The Company's marketing
personnel meet with vehicle suppliers and, based upon the Company's
historical data on salvage vehicles and upon vehicle information supplied by
the vehicle suppliers, provide vehicle suppliers with detailed analysis of
the net return on salvage vehicles and a proposal setting forth ways in which
the Company can improve net returns on salvage vehicles and reduce
administrative costs and expenses.
See "Factors Affecting Future Results" below.
BUYERS
The buyers of salvage vehicles at salvage vehicle auctions are
primarily dismantlers, rebuilders, vehicle repair licensees and used
automobile dealers. Dismantlers either dismantle the vehicles and sell the
parts, or sell the entire vehicle to rebuilders, used car dealers or the
public. Rebuilders and vehicle repair licensees are generally wholesale used
car dealers and body shops that repair salvage vehicles for sale to used car
dealers. Used car dealers typically purchase late model, slightly damaged or
intact, recovered stolen vehicles for repair and sale.
The Company maintains a database of thousands of registered buyers
of salvage vehicles in the vehicle dismantling, rebuilding, repair, and/or
resale businesses. The Company believes that it has established a broad buyer
base by providing buyers of salvage vehicles with a variety of programs and
services. In order to gain admission to a Company auction and become a
registered buyer, prospective buyers must pay an initial registration fee and
an annual fee, have a vehicle dismantler's, dealer's or repair license, have
an active resale license, and provide requested personal and business
information. Registration entitles a buyer to transact business at any
Company auction subject to local licensing and permitting. A buyer may also
bring guests to an auction for a fee. Strict admission procedures are
intended to prevent frivolous bids that would invalidate an auction. The
Company markets to buyers through customer incentive programs, sales notices,
telemarketing and participation in trade show events. In addition, Copart has
initiated programs specifically designed to address the needs of its
wholesale and high volume buyers, including providing streamlined paperwork
processing, simplified payment procedures and personalized customer services.
No single buyer accounted for more than 1% of the Company's net revenues in
fiscal 1998.
10
<PAGE>
COMPETITION
The salvage vehicle auction industry is highly fragmented. As a
result, the Company faces intense competition for the supply of salvage
vehicles from vehicle suppliers, as well as competition for buyers of vehicles
from other salvage vehicle auction companies. The Company believes its
principal competitor is Insurance Auto Auctions, Inc. ("IAA"). Over the last
several years, IAA acquired and opened a number of salvage vehicle auction
facilities. IAA is a significant competitor in certain regions in which the
Company operates or may expand in the future. In other regions of the United
States, the Company faces substantial competition from salvage vehicle auction
facilities with established relationships with vehicle suppliers and buyers
and financial resources which may be greater than the Company's. Due to the
limited number of vehicle suppliers and the absence of long-term contractual
commitments between the Company and such salvage vehicle suppliers,
competition for salvage vehicles from such suppliers is intense. The Company
may also encounter significant competition for state, regional and national
supply agreements with vehicle suppliers. * Vehicle suppliers may enter into
state, regional or national supply agreements with competitors of the Company.
The Company has a number of regional and national contracts with
various suppliers. There can be no assurance that the existence of other
state, regional or national contracts entered into by the Company's
competitors will not have a material adverse effect on the Company or the
Company's expansion plans. Furthermore, the Company is likely to face
competition from major competitors in the acquisition of salvage vehicle
auction facilities, which could significantly increase the cost of such
acquisitions and thereby materially impede the Company's expansion objectives
or have a material adverse effect on the Company's results of operations. *
Potential competitors could include vehicle suppliers, some of which presently
supply salvage vehicles to the Company and used car auction companies. While
most vehicle suppliers have abandoned or reduced efforts to sell salvage
vehicles without the use of service providers such as the Company, there can
be no assurance that they may not in the future decide to dispose of their
salvage vehicles directly to buyers. Existing or new competitors may be
significantly larger and have greater financial and marketing resources than
the Company. There can be no assurance that the Company will be able to
compete successfully in the future.
See "Factors Affecting Future Results" below.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws
and regulations regarding the protection of the environment. In the salvage
vehicle auction industry, large numbers of wrecked vehicles are stored at
auction facilities for short periods of time. Minor spills of gasoline, motor
oils and other fluids may occur from time to time at the Company's facilities
which may result in localized soil, surface water or groundwater
contamination. Petroleum products and other hazardous materials are contained
in approved aboveground containment tanks located at certain of the Company's
facilities. Waste materials such as waste solvents or used oils are generated
at some of the Company's facilities which are disposed of as nonhazardous or
hazardous wastes. The Company has put into place procedures to reduce the
amounts of soil contamination that may occur at its facilities, and has
initiated safety programs and training of personnel on safe storage and
handling of hazardous materials. The Company believes that it is in compliance
in all material respects with applicable environmental regulations and does
not anticipate any material capital expenditures for environmental compliance
or remediation except with regard to the Dallas Operation (as defined below).*
Environmental laws and regulations, however, could become more stringent
- ----------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
11
<PAGE>
over time and there can be no assurance that the Company or its operations
will not be subject to significant compliance costs in the future. To date,
the Company has not incurred expenditures for preventive or remedial action
with respect to soil contamination or the use of hazardous materials which
have had a material adverse effect on the Company's financial condition or
results of operations. Contamination which may occur at the Company's
facilities and the potential contamination by previous users of certain
acquired facilities create the risk, however, that the Company could incur
substantial expenditures for preventive or remedial action, as well as
potential liability arising as a consequence of hazardous material
contamination, which could have a material adverse effect on the Company.
In connection with its acquisition of a facility in the Dallas
metropolitan area (the "Dallas Operation") in March 1994, the Company will pay
$3.0 million for environmental corrective action and consulting expenses
associated with an approximately six-acre portion of the Dallas Operation's
real property which contains elevated levels of lead due to the prior
activities of the former operators. If total costs of corrective action at the
Dallas Operation do not exceed $3.0 million, then the remaining funds after
payment of all costs of corrective action, up to $3.0 million, will be paid as
consulting fees to the former principal shareholder of the Dallas Operation.
If the total costs of corrective action exceed $3.0 million, then the former
principal shareholder of the Dallas Operation will pay the next $1.2 million
of costs of corrective action. The Company and such former principal
shareholder are each obligated to pay up to $1.5 million of the costs for
corrective action, if incurred, between $4.2 million and $7.2 million. If the
total costs of corrective action exceed $7.2 million, then such former
principal shareholder will either pay up to the next $1.0 million, or notify
the Company to pay up to the next $1.0 million in exchange for a
dollar-for-dollar credit toward the purchase price of the Dallas Operation's
real property, calculated as the greater of $1.0 million or the then fair
market value. Such former principal shareholder's obligations under this
arrangement are secured by a pledge of 225,000 shares of the Company's Common
Stock. However, there can be no assurance that such former principal
shareholder will be able to meet his obligations or that the pledged stock
will be sufficient to cover such obligations. In March 1995, the Texas Natural
Resource Conservation Commission ("TNRCC") authorized the Company to perform a
Corrective Measure Study ("CMS") to determine if the proposed on-site soil
stabilization remedy would be effective. In August 1995, the Company's
environmental consultant submitted a Baseline Risk Assessment ("BRA") to the
TNRCC, which concluded that neither human health nor the environment are
placed at risk by the lead battery casing chips at the site. In April 1996,
the TNRCC approved the BRA, and in October 1996 approved a modified CMS.
Following such approval, the Company contracted to complete the on-site
stabilization and asphalt cap for a contract price of $687,000. During the
course of the project to stabilize and asphalt cap the contaminated soil, a
dispute arose among the Company, the environmental engineer, and the general
contractor hired to perform the remediation work. The asphalt cap began to
fail almost immediately after the Company began to resume its operations on
the cap. Ultimately, the Company dismissed both the contractor and the
engineer, and has filed suit against both for the defects in the construction
and/or design. The Company hired a new engineer to design a concrete cap to
cover the remediated area. The concrete cap in lieu of an asphalt cap is
estimated to add $650,000 toward the cost to complete the in-site remediation.
Said concrete cap is approximately 80% complete to date. The Company has also
retained the services of another environmental engineer to coordinate
completion of the corrective action approved by the TNRCC. The Company
anticipates that the concrete capping of the site will be completed prior to
the end of calendar year 1998. Upon completion of the on-site soil
stabilization to the satisfaction of the TNRCC, the TNRCC has indicated that
it will issue a no-further-action letter, at which time the remaining funds
shall be paid as consulting fees as set forth above. There can be no assurance
that the ultimate cost of corrective action, or any other liabilities with
respect to the site, including costs and liability resulting from the
litigation with the former environmental engineer and general contractor, will
not exceed the $3.0 million which the Company is obligated to pay for
remediation costs and consulting fees to the former principal shareholder of
the Dallas Operation, or that such actual costs will not have a material
adverse effect on the Company.
Metals and hydrocarbon soil contamination was detected at one of
Copart's California facilities, which was determined to be associated with
uses of the property by persons prior to the time that the prior owner became
the occupant of the facility. In addition, metals were detected in samples
collected from
12
<PAGE>
groundwater monitoring wells located at this property. Copart obtained
specific indemnification from the landowner of such facility for any liability
for pre-existing environmental contamination. In addition, a small quantity of
tetrachlorethane ("PCE") and toluene was detected in a temporary ground water
monitoring well at the Dallas Operation. The Company's environmental
consultants concluded that both PCE and toluene were from an off-site source
upgradient of the facility, and no further action was recommended.
In 1991, Copart removed an underground storage tank from one of its
California facilities after monitoring devices indicated that the tank was
leaking. Subsequent testing revealed localized low level contamination of the
soil and ground water where the tank was removed, but no migration of the
contamination. The Company has retained the services of an environmental
consultant to represent the Company before the local county environmental
management department. The Company has been informed by the consultant that
the county agreed to a plan involving periodic monitoring of soil and ground
water to assure that the contamination is not spreading. In fiscal 1997, the
county issued a remedial action completion certification indicating that no
further action related to the underground storage tank release is required.
In connection with the acquisition of NER Auction Systems ("NER"),
environmental consultants were engaged to perform a limited environmental
assessment of the properties on which NER conducted its business. Prior to the
acquisition, the site assessment for the Company's leased facility located in
Bellingham, Massachusetts, reported concentrations of Benzene and MTBE in the
groundwater, which slightly exceed the reportable concentrations under the
Massachusetts environmental laws. The former principal shareholder of NER has
undertaken a remedial plan to remediate the groundwater contamination. To the
best knowledge of the Company, that remedial plan is on-going. It remains
unclear if any of the contamination has migrated off-site and additional
remediation costs may be necessary if any groundwater beyond the site has been
contaminated. Pursuant to the terms of the NER acquisition, Copart is
indemnified as to any environmental liabilities relating to sites being leased
from NER, including the Bellingham site by the former shareholders of NER.
There can be no assurance that this indemnification will be adequate.
The Company does not believe that the metals and hydrocarbon soil
contamination, PCE, storage tank removal or Bellingham Remediation will,
either individually or in the aggregate, have a material adverse effect on the
Company.*
GOVERNMENTAL REGULATIONS
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. The acquisition and sale of damaged and recovered stolen vehicles
is regulated by state motor vehicle departments. In addition to the regulation
of sales and acquisitions of vehicles, the Company is also subject to various
local zoning requirements with regard to the location of its auction and
storage facilities. These zoning requirements vary from location to location.
The Company is also subject to environmental regulations. The Company believes
that it is in compliance in all-material respects with applicable regulatory
requirements. The Company may be subject to similar types of regulations by
federal, state, and local governmental agencies in new markets. Although the
Company believes that it has all permits necessary to conduct its business and
is in material compliance with applicable regulatory requirements, failure to
comply with present or future regulations or changes in interpretations of
existing regulations could result in impairment of the Company's operations
and the imposition of penalties and other liabilities.
- ----------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
13
<PAGE>
MANAGEMENT INFORMATION SYSTEM
The Company's management information system ("MIS") consists of an
expandable, integrated IBM AS/400 computer located in Benicia, California,
integrated computer interfaces (Internet and Salvage Lynk) and proprietary
software which enables salvage vehicles to be tracked by the Company and
vehicle suppliers throughout the salvage vehicle auction process. By providing
this accessibility, the Company provides a marketing benefit to its customers
in streamlining their internal salvage tracking process. The Company's MIS is
an essential part of its strategy to provide superior service to its clients
and buyers, as well as to effectively support internal operations. In February
1997, Copart finished the development of a new proprietary operating system,
the Copart Auction System ("CAS"). During fiscal 1998, the Company fully
implemented CAS at all locations. The new system is written for the millenium
change and is designed to be more efficient in processing and billing
vehicles. The Company continues to research new computer technologies to
enhance its MIS development. Other functions provided by MIS include
accounting, inventory and salvage vehicle supplier and buyer information. The
Company believes that, with planned upgrades and integration of new
acquisitions, the Company's MIS will serve its information management needs
for the foreseeable future. *
EMPLOYEES
As of July 31, 1998, the Company had approximately 1,181 full-time
employees, of whom approximately 118 were engaged in general and
administrative functions and approximately 1,063 were engaged in yard and
fleet operations. The Company is not subject to any collective bargaining
agreements and believes that its relationships with its employees are good.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted
for a substantial portion of the Company's revenues. In fiscal 1998, vehicles
supplied by Copart's single largest supplier accounted for approximately 16%
of Copart's revenues. The Company's agreements with this and other vehicle
suppliers are either oral or written agreements that typically are subject to
cancellation by either party upon 30 days notice. There can be no assurance
that existing agreements will not be canceled or that the terms of any new
agreements will be comparable to those of existing agreements. While the
Company believes that, as the salvage vehicle auction industry becomes more
consolidated, the likelihood of large vehicle suppliers entering into
agreements with single companies to dispose of all of their salvage vehicles
on a statewide, regional or national basis increases, there can be no
assurance that the Company will be able to enter into such agreements or that
it will be able to retain its existing supply of salvage vehicles in the event
vehicle suppliers begin disposing of their salvage vehicles pursuant to state,
regional or national agreements with other operators of salvage vehicle
auction facilities. * A loss or reduction in the number of vehicles from a
significant vehicle supplier or material changes in the terms of an
arrangement with a substantial vehicle supplier could have a material adverse
effect on the Company's financial condition and results of operations.
The Company's operating results have in the past and may in the
future fluctuate significantly depending on a number of factors. These factors
include changes in the market value of salvage vehicles, buyer attendance at
salvage auctions, delays or changes in state title processing and/or changes
in state or federal laws or regulations affecting salvage vehicles,
fluctuations in ACV's of salvage vehicles, the availability of vehicles and
weather conditions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any
- ---------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
14
<PAGE>
indication of future performance. There can be no assurance, therefore, that
the Company's operating results in some future quarter will not be below the
expectations of public market analysts and/or investors.
The market price of the Company's Common Stock could be subject to
significant fluctuations in response to various factors and events, including
variations in the Company's operating results, the timing and size of
acquisitions and facility openings, the loss of vehicle suppliers or buyers,
the announcement of new vehicle supply agreements by the Company or its
competitors, changes in regulations governing the Company's operations or its
vehicle suppliers, environmental problems or litigation. In addition, the
stock market in recent years has experienced broad price and volume
fluctuations that often have been unrelated to the operating performance of
companies.
The Company seeks to increase sales and profitability primarily
through the opening of new facilities, the acquisition of other salvage
vehicle auction facilities, and the increase of salvage vehicle volume and
revenue at existing facilities. There can be no assurance that the Company
will be able to continue to acquire additional facilities on terms economical
to the Company or that the Company will be able to increase revenues at newly
acquired facilities above levels realized at such facilities prior to their
acquisition by the Company. In particular, the Company's rate of growth could
be materially adversely affected if the Company is not able to open or acquire
new facilities at the same rate as it has in the past. Additionally, as the
Company continues to grow, its openings and acquisitions will have to be more
numerous or of a larger size in order to have a material impact on the
Company's operations. The ability of the Company to achieve its expansion
objectives and to manage its growth is also dependent on other factors,
including the integration of new facilities into existing operations, the
establishment of new relationships or expansion of existing relationships with
vehicle suppliers, the identification and lease of suitable premises on
competitive terms and the availability of capital. The size and timing of such
acquisitions and openings may vary. Management believes that facilities opened
by the Company require more time to reach revenue and profitability levels
comparable to its existing facilities and may have greater working capital
requirements than those facilities acquired by the Company. Therefore, to the
extent that the Company opens a greater number of facilities in the future
than it has historically, the Company's growth rate in revenues and
profitability may be adversely affected.
Currently, Willis J. Johnson, Chief Executive Officer of the Company,
together with two other existing shareholders, beneficially owns approximately
41% of the issued and outstanding shares of Common Stock. This interest in the
Company may also have the effect of making certain transactions, such as
mergers or tender offers involving the Company, more difficult, absent the
support of Mr. Johnson and such other existing shareholders.
While the Company believes that the proceeds from its financing and
public offerings, cash generated from operations, borrowing availability under
its line of credit and existing equipment leasing lines of credit will be
sufficient to satisfy the Company's working capital requirements for the next
12 months, there can be no assurance that additional funding will not be
required sooner, depending on a number of factors including the rate at which
the Company acquires or opens new facilities, the size and timing of capital
expenditures for existing facilities, the extent of future environmental
remediation costs, if any, and other factors. There can be no assurance that
any such funding would be available if, and when, required by the Company, on
acceptable terms to the Company or at all.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of July 31,
1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Willis J. Johnson 51 Chief Executive Officer and Director
A. Jayson Adair 29 President and Director
James E. Meeks 49 Executive Vice President and Chief Operating Officer
Wayne R. Hilty 42 Senior Vice President and Chief Financial Officer
Paul A. Styer 42 Senior Vice President, General Counsel and Secretary
</TABLE>
WILLIS J. JOHNSON, co-founder of the Company, has served as Chief
Executive Officer of the Company since 1986, and has been a Board member since
1982. Mr. Johnson was also President of the Company from 1986 through May
1995. Mr. Johnson has over 26 years of experience in owning and operating auto
dismantling and vehicle salvage companies.
A. JAYSON ADAIR has served as President of the Company since October
1996 and as a director since September 1992. From April 1995 to October 1996,
Mr. Adair served as Executive Vice President, from August 1990 until April
1995, Mr. Adair served as Vice President of Sales and Operations and from June
1989 to August 1990, Mr. Adair served as the Company's Manager of Operations.
JAMES E. MEEKS has served as Vice President and Chief Operating
Officer of the Company since September 1992 when he joined the Company
concurrent with the Company's purchase of South Bay Salvage Pool (the "San
Martin Operation"). Mr. Meeks has served as Executive Vice President and
Director since October 1996 and as Senior Vice President since April 1995.
From April 1986 to September 1992, Mr. Meeks, together with his family, owned
and operated the San Martin Operation. Mr. Meeks is also an officer, director
and part owner of Cas & Meeks, Inc., a towing and subhauling service company,
which he has operated since 1991. Mr. Meeks has also been an officer and
director of E & H Dismantlers, a self-service auto dismantler, since 1967. Mr.
Meeks has over 31 years of experience in the vehicle dismantling business.
WAYNE R. HILTY has served as Senior Vice President and Chief
Financial Officer of the Company since January 1998. Mr. Hilty has been the
Company's Vice-President and Controller since 1997, and previously was an
independent consultant to the Company. Mr. Hilty received a B.S. from San
Francisco State University in 1980 and became a certified public accountant in
1983 with Arthur Young and Company.
PAUL A. STYER has served as General Counsel of the Company since
September 1992, served as Senior Vice President since April 1995 and as Vice
President from September 1992 until April 1995. Mr. Styer served as a Director
of the Company from September 1992 until October 1993. Mr. Styer has served as
Secretary since October 1993. From August 1990 to September 1992, Mr. Styer
conducted an independent law practice. Mr. Styer received a B.A. from the
University of California, Davis and a J.D. from the University of the Pacific.
Mr. Styer is a member of the California State Bar Association.
Officers are elected by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among any of the
directors or executive officers of the Company, except that A. Jayson Adair is
the son-in-law of Willis J. Johnson.
16
<PAGE>
ITEM 2. PROPERTIES
FACILITIES INFORMATION
The following table sets forth certain information regarding the
facilities currently used by the Company.
<TABLE>
<CAPTION>
FACILITY OPENED/ APPROXIMATE EXPIRATION OF
LOCATION ACQUIRED ACREAGE LEASE TERM PURCHASE OPTION
-------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
Vallejo, California (1) 25 February 2000 Yes
Sacramento, California A 12 Company owned Not applicable
Hayward, California O 8 Month-to-month No
Fresno, California A 20 July 2000 Yes
Bakersfield, California A 7 Company owned Not applicable
San Martin, California A 14 August 2002 Yes
Colton, California A 14 November 2002 Right of first refusal
Seattle, Washington A 11 March 2001 Yes
Portland, Oregon O 33 June 2001 Yes
Los Angeles, California A 12 June 1998 Right of first refusal
Houston, Texas A 62 January 2004 Right of first refusal
Dallas, Texas (2) A 78 March 2004 Yes
Lufkin, Texas A 19 May 1999 Yes
Longview, Texas A 20 May 1999 Yes
Atlanta, Georgia A 62 July 2004 Yes
Sacramento, California O 11 Month-to-month Not applicable
Kansas City, Kansas A 27 October 2004 Yes
Oklahoma City, Oklahoma A 20 November 2005 Yes
Tulsa, Oklahoma A 10 August 2005 Yes
St. Louis, Missouri A 21 March 2005 Yes
Conway, Arkansas A 22 March 2005 Yes
West Memphis, Arkansas A 21 April 2005 Yes
Hartford, Connecticut A 30 May 2005 Yes
Marlboro, New York A 25 May 2005 Yes
Syracuse, New York A 16 May 2005 Yes
Philadelphia, Pennsylvania A 50 May 2005 Yes
Boston, Massachusetts A 27 May 2005 Yes
Pittsburgh, Pennsylvania A 30 May 2005 Yes
Columbus, Ohio A 20 May 2005 Yes
Southampton, New York A 18 July 2000 Yes
Glassboro, New Jersey A 18 May 2005 Yes
Waldorf, Maryland A 36 May 2005 Yes
Buffalo, New York A 14 May 2005 Yes
Miami, Florida A 18 May 2005 Yes
Tampa, Florida A 13 May 2005 Yes
Chicago, Illinois A 15 September 1999 Right of first refusal (3)
Minneapolis, Minnesota A 10 December 2001 No
St. Cloud, Minnesota A 20 August 2003 Right of first refusal (3)
Madison, Wisconsin A 25 August 2003 Right of first refusal (3)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FACILITY OPENED/ APPROXIMATE EXPIRATION OF
LOCATION ACQUIRED ACREAGE LEASE TERM PURCHASE OPTION
-------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
Milwaukee, Wisconsin A 18 August 2003 Right of first refusal (3)
Jackson, Mississippi A 15 July 2005 Yes
Charlotte, North Carolina O 24 July 2005 Yes
Jacksonville, Florida O 28 October 2005 Yes
Van Nuys, California O 40 Company owned Not applicable
Indianapolis, Indiana O 15 February 2001 No
El Paso, Texas A 18 Company owned Not applicable
Phoenix, Arizona O 13 February 2001 Yes
Hammond, Indiana O 38 September 2001 Right of first refusal
Woodinville, Washington O 10 August 2001 No
Baton Rouge, Louisiana A 30 Company owned Not applicable
Salt Lake City, Utah O/A 27 March 2007 Yes
Avon, Minnesota A 19 October 2007 Yes
Raleigh, North Carolina O 28 November 2007 Yes
Orlando, Florida O 22 November 2007 Right of first refusal
Columbia, South Carolina A 23 Company Owned Not Applicable
Las Vegas, Nevada O 9 January 2003 Right of first refusal
Mobile, Alabama A 38 April 2008 Yes
San Diego, California A 31 March 2008 Yes
Des Moines, Iowa A 15 June 2008 Right of first refusal
Detroit, Michigan A 43 July 2003 Yes
Benicia, California (4) N/A 29,200/sq ft April 2005 No
- ---------
</TABLE>
(1) Copart's initial facility.
(2) In connection with the acquisition of the Dallas Operation, Copart
obtained an option, exercisable from March 2004 through March 2014, to
acquire the Dallas Operation's real property for the purchase price of $2.5
million, consisting of $500,000 in cash and a $2.0 million promissory note
bearing interest at the then prime rate payable in equal monthly installments
over 10 years. Such purchase price may be subject to adjustment in the event
that the total cost of corrective action at the Dallas Operation exceeds $7.2
million.
(3) Right of first refusal for these properties is held by the NER Auction
Group entities which are leasing such properties from third party landowners
and as to which Copart is the sublessee.
(4) Corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DISTRIBUTIONS
The following table summarizes the high and low sales prices per
share for each quarter during the last two fiscal years. As of July 31, 1998,
there were 13,275,060 shares outstanding. The Company's Common Stock has been
quoted on the Nasdaq National Market under the symbol CPRT since March 17,
1994. As of July 31, 1998, the Company had 294 shareholders of record.
<TABLE>
<CAPTION>
1997 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter 21 1/8 14 3/8
Second Quarter 18 3/4 10 1/4
Third Quarter 18 3/4 12 3/4
Fourth Quarter 19 12 7/8
1998 High Low
- ---- ---- ---
First Quarter 19 15 5/8
Second Quarter 18 3/8 15 1/4
Third Quarter 20 1/2 15
Fourth Quarter 24 1/2 17 1/8
</TABLE>
The Company has not paid a cash dividend since 1984 and does not
anticipate paying any cash dividends in the foreseeable future.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The tables below summarize the Selected Consolidated Financial Data
of the Company as of and for each of the last five fiscal years. This selected
financial information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report. The selected financial data presented below
have been derived from the Company's consolidated financial statements that
have been audited by KPMG Peat Marwick LLP, independent public accountants,
whose report is included herein covering the consolidated financial statements
as of July 31, 1998 and 1997 and for each of the years in the three-year
period ended July 31, 1998. The selected operating data for the years ended
July 31, 1995 and 1994 and the balance sheet data as of July 31, 1996, 1995
and 1994 are derived from audited consolidated financial statements not
included herein:
<TABLE>
<CAPTION>
(in 000's except per share and other data)
SELECTED OPERATING DATA 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $114,206 $126,276 $118,248 $ 58,117 $ 22,794
Operating income 23,508 18,853 17,802 11,261 4,112
Income before income taxes
and extraordinary item 24,945 19,475 18,190 11,437 3,710
Extraordinary item, net -- -- -- -- (1,633)
Net income 15,216 11,993 11,185 6,894 590
Basic per share amounts:
Income before extraordinary item 1.15 .93 .90 .71 .35
Net income 1.15 .93 .90 .71 .09
Weighted average shares 13,181 12,874 12,433 9,733 6,335
Diluted per share amounts:
Income before extraordinary item 1.13 .90 .85 .65 .30
Net income 1.13 .90 .85 .65 .08
Weighted average shares 13,450 13,257 13,216 10,614 7,305
BALANCE SHEET DATA
Cash and short-term investments $ 28,796 $ 27,685 $ 13,026 $ 13,779 $ 17,871
Working capital 54,829 48,930 40,586 32,756 21,890
Total assets 190,942 175,340 158,066 135,158 62,569
Total debt 8,425 9,753 11,260 3,734 4,019
Shareholders' equity 160,183 142,814 126,245 113,116 49,288
OTHER
Gross proceeds (000's) $534,818 $537,657 $506,916 $317,788 $144,397
Number of auction facilities 60 53 49 42 15
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company processes salvage vehicles principally on a consignment
method, on either the Percentage Incentive Program or on a fixed fee
consignment basis. Using either consignment method, only the fees associated
with vehicle processing are recorded in revenue. The Company also processes a
percentage of its salvage vehicles pursuant to purchase contracts (the
"Purchase Program") under which the Company records the gross proceeds of the
vehicle sale in purchased vehicle revenues and cost of the vehicle in yard and
fleet expenses.
For the fiscal years ended July 31, 1998, 1997 and 1996,
approximately 46%, 33%, and 25% of the vehicles sold by Copart, respectively,
were processed under the PIP. The increase in the percentage of vehicles sold
under the PIP in fiscal 1998 is due to the Company's successful marketing
efforts. The Company attempts to convert acquired operations to the PIP, which
typically results in higher net returns to vehicle suppliers and higher fees
to the Company than standard fixed fee consignment programs.
For the fiscal years ended July 31, 1998, 1997 and 1996,
approximately 53%, 61% and 69%, of the vehicles sold by Copart, respectively,
were processed under fixed fee agreements. The decline in the percentage of
vehicles under fixed contracts is the direct result of the Company's marketing
efforts to convert contracts from fixed fee to PIP.
For the fiscal years ended July 31, 1998, 1997 and 1996,
approximately 1%, 6% and 6% of the vehicles sold by Copart, respectively, were
processed pursuant to the Purchase Program. The decrease in vehicles sold
under the Purchase between fiscal 1998 and 1997 is attributable to the
termination, or renegotiation to consignment contracts, of certain vehicle
purchase contracts.
Due to a number of factors, including the timing and size of new
acquisitions, market conditions, and acceptance of the PIP Program by vehicle
suppliers, the percentage of vehicles processed under this program in future
periods may vary. *
Costs attributable to yard and fleet expenses consist primarily of
operating personnel (which includes yard management, clerical and yard
employees), rent, contract vehicle towing, insurance, fuel, fleet maintenance
and repair, and acquisition costs of salvage vehicles under the Purchase
Program. Costs associated with general and administrative expenses consist
primarily of executive, accounting and data processing, sales personnel,
professional fees and marketing expenses.
The period-to-period comparability of Copart's operating results and
financial condition is substantially affected by business acquisitions and new
openings made by Copart during such periods.
ACQUISITIONS AND NEW OPERATIONS
Copart has experienced significant growth as it acquired ten salvage
vehicle auction facilities and established ten new facilities since the
beginning of fiscal 1996. All of the acquisitions have been accounted for
using the purchase method. Accordingly, the excess of the purchase price over
the fair value of net tangible assets acquired (consisting principally of
goodwill) is being amortized over periods not exceeding 40 years.
- -------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
21
<PAGE>
As part of the Company's overall expansion strategy of offering
integrated service to vehicle suppliers, the Company anticipates further
attempts to open or acquire new salvage facilities in new regions, as well as
the regions currently served by Company facilities.* As part of this strategy,
during fiscal 1998, Copart acquired facilities in or near Avon, Minnesota;
Columbia, South Carolina; Mobile, Alabama; San Diego, California; Des Moines,
Iowa and Detroit, Michigan and opened new facilities in Orlando, Florida;
Raleigh, North Carolina and Las Vegas, Nevada. In fiscal 1997, Copart acquired
facilities near Baton Rouge, Louisiana and Salt Lake City, Utah and opened new
facilities in Woodinville, Washington and Hammond, Indiana. In fiscal 1996,
Copart acquired two facilities in or near Jackson, Mississippi and El Paso,
Texas and opened five new facilities in or near Charlotte, North Carolina;
Jacksonville, Florida; Indianapolis, Indiana; Van Nuys, California; and
Phoenix, Arizona. The Company believes that these acquisitions and openings
help to solidify the Company's coverage of the United States. The Company
expects to incur future amortization charges in connection with anticipated
acquisitions attributable to goodwill, covenants not to compete and other
purchase-related adjustments. *
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers to the PIP, which
typically results in higher net returns to vehicle suppliers and higher fees
to the Company than standard fixed fee consignment programs, (iii) making
available vehicle purchase programs which are designed to reduce vehicle
suppliers' administrative expenses and (iv) initiating the Company's
merchandising procedures. In addition, the Company attempts to effect cost
efficiencies at each of its acquired facilities through, among other things,
implementing the Company's operational procedures, integrating the Company's
management information systems and, when necessary, redeploying personnel.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the consolidated statements of income of Copart expressed as a
percentage of revenues. There can be no assurance that any trend in operating
results will continue in the future.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Yard and fleet 62.6 70.8 70.6
General and administrative 9.9 8.4 9.2
Depreciation and amortization 6.9 5.9 5.1
----- ----- -----
Total operating expenses 79.4 85.1 84.9
----- ----- -----
Operating income 20.6 14.9 15.1
Other income, net 1.3 0.5 0.3
----- ----- -----
Income before income taxes 21.9 15.4 15.4
Income taxes 8.5 5.9 5.9
----- ----- -----
Net income 13.4% 9.5% 9.5%
----- ----- -----
----- ----- -----
</TABLE>
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
22
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Revenues were approximately $114.2 million during fiscal 1998, a
decrease of approximately $12.1 million, or 9.6%, over fiscal 1997. The change
in revenues is due primarily to a $7.9 million increase in salvage fees plus a
$2.9 million increase in transportation revenue, offset by a $22.9 million
decrease in purchase vehicle revenues, due to terminated contracts. Under the
Purchase Program, the Company records the gross proceeds of the vehicle sale
as revenue.
New facilities in Avon, Raleigh, Orlando, Columbia, Mobile, Des
Moines and San Diego contributed $2.0 million of new salvage fees and
transportation revenues during fiscal 1998. Existing yard salvage fees and
transportation revenues increased by $8.8 million, or 9.0%, and existing yard
purchased vehicle revenues decreased by $23.1 million, or 81.6% during fiscal
1998, as compared to a drop of 16.6% during 1997.
Yard and fleet expenses were approximately $71.5 million during
fiscal 1998, a decrease of approximately $17.8 million, or 20%, over fiscal
1997. Approximately $1.8 million of the change was the result of the
acquisition of the Avon, Columbia, Mobile, Des Moines and San Diego operations
and the opening of Copart's Raleigh and Orlando facilities. The remainder of
the decrease in yard and fleet expenses was primarily attributable to the
decrease in the cost of Purchase Program vehicles. Yard and fleet expense
decreased to 62.6% of revenues during fiscal 1998, as compared to 70.8% of
revenues during fiscal 1997.
General and administrative expenses were approximately $11.3 million
during fiscal 1998, an increase of approximately $0.7 million, or 7.1%, over
fiscal 1997, due primarily to increased personnel expense. General and
administrative expenses increased to 9.9% of revenues during fiscal 1998, as
compared to 8.4% of revenues during fiscal 1997 primarily as a result of the
accounting impact of the Purchase Program.
Depreciation and amortization expense was approximately $7.8 million
during fiscal 1998, an increase of approximately $0.4 million, or 5.1%, over
fiscal 1997. This increase was due primarily to the amortization of goodwill
and covenants not to compete and depreciation of acquired assets resulting
from the acquisition of new salvage auction facilities.
Interest expense was approximately $651,000 during fiscal 1998, a
decrease of $175,500 over fiscal 1997. This decrease was attributable to the
decrease in total debt.
The effective income tax rate of 39% applicable to fiscal 1998 is
comparable to the fiscal 1997 effective income tax rate of 38%.
Due to the foregoing factors, Copart realized net income of $15.2
million for fiscal 1998, compared to net income of $12.0 million for fiscal
1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues were approximately $126.3 million during fiscal 1997, an
increase of approximately $8.0 million, or 7%, over fiscal 1996. Approximately
$4.2 million of the increase in revenues was the result of the acquisition of
the El Paso, Baton Rouge, and Salt Lake City operations and the opening of
Copart's Charlotte, Jacksonville, Indianapolis, and Phoenix facilities.
Existing yard revenues increased overall by approximately $3.8 million, or 3%,
over fiscal 1996, despite decreased revenues from Purchase Program vehicles of
approximately $5.8 million. Under the Purchase Program the Company records the
gross proceeds of the vehicle sale in revenue. After eliminating the
accounting impact of the Purchase Program, the remainder of the increase in
revenues at existing operations was primarily attributable to increased per
unit revenues of approximately 10%.
23
<PAGE>
Yard and fleet expenses were approximately $89.4 million during
fiscal 1997, an increase of approximately $5.9 million, or 7%, over fiscal
1996. Approximately $0.8 million of the increase was the result of the
acquisition of the El Paso, Baton Rouge, and Salt Lake City operations and the
opening of Copart's Charlotte, Jacksonville, Indianapolis, and Phoenix
facilities. The remainder of the increase in yard and fleet expenses was
attributable to increased yard and fleet expenses from existing operations,
including the cost of Purchase Program vehicles. Yard and fleet expense
increased to 70.8% of revenues during fiscal 1997, as compared to 70.6% of
revenues during fiscal 1996.
General and administrative expenses were approximately $10.6 million
during fiscal 1997, a decrease of approximately $0.3 million, or 3%, over
fiscal 1996, due primarily to decreased personnel expense. General and
administrative expenses decreased to 8.4% of revenues during fiscal 1997, as
compared to 9.2% of revenues during fiscal 1996 due to costs being spread over
a greater revenue base.
Depreciation and amortization expense was approximately $7.5 million
during fiscal 1997, an increase of approximately $1.5 million, or 24%, over
fiscal 1996. This increase was due primarily to the amortization of goodwill
and covenants not to compete and depreciation of acquired assets resulting
from the acquisition of new salvage auction facilities.
Interest expense was approximately $826,000 during fiscal 1997, an
increase of $375,000 over fiscal 1996. This increase was attributable to the
increase in debt associated with the land acquisition in Van Nuys in May 1996.
The effective income tax rate of 38% applicable to fiscal 1997 is
comparable to the fiscal 1996 effective income tax rate of 39%.
Due to the foregoing factors, Copart realized net income of $12.0
million for fiscal 1997, compared to net income of $11.2 million for fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth through cash generated from
operations, debt financing, public offerings of Common Stock, and the equity
issued in conjunction with certain acquisitions.
At July 31, 1998, Copart had working capital of approximately $54.8
million, including cash, cash equivalents and short-term investments of
approximately $28.8 million. The Company is able to process, market, sell and
receive payment for processed vehicles quickly. Therefore, the Company does
not require substantial amounts of working capital, as it receives payment for
vehicles at approximately the same time as it remits payments to vehicle
suppliers. The Company's primary source of cash is from the collection of
sellers' fees and reimbursable advances from the proceeds of auctioned salvage
vehicles and from buyers' fees.
The Company has a bank credit facility provided by Wells Fargo Bank,
N.A., U.S. Bank of California and Fleet National Bank (the "Bank Credit
Facility"). The Bank Credit Facility consists of an unsecured revolving
reducing line of credit of $50 million, which matures in February 2002. The
amount available under the facility reduces by $10 million in February 2000
and 2001, leaving the principal balance available as follows: March 1, 2000,
$40 million available; March 1, 2001, $30 million available; February 28,
2002, the line of credit matures. Amounts outstanding under the Bank Credit
Facility accrue interest at either the prime rate most recently announced by
Wells Fargo or at a rate based on LIBOR plus a spread of 0.50%, subject to
increases to a maximum spread of 1.25% based on certain credit ratios. As of
July 31, 1998, there are no outstanding borrowings under this facility. The
Company is subject to customary covenants, including restrictions on payment
of dividends, with which it is in compliance.
24
<PAGE>
The Company has entered into various operating lease lines for the
purpose of leasing up to $10.1 million of yard and fleet equipment, of which
approximately $6.3 million was available as of July 31, 1998.
Copart generated cash from operations of approximately $21.9 million,
$24.6 million and $11.3 million in fiscal years 1998, 1997 and 1996,
respectively.
During the fiscal year ended July 31, 1998, Copart used cash for the
acquisition of the Avon, Columbia, Mobile, San Diego, Des Moines and Detroit
operations, which had an aggregate cash cost of approximately $9.8 million.
During the fiscal year ended July 31, 1997, Copart used cash for the
acquisition of the Baton Rouge and the Salt Lake City operations, which had an
aggregate cash cost of approximately $3.4 million. During the fiscal year
ended July 31, 1996, Copart used cash for the acquisition of the Jackson,
Mississippi and El Paso, Texas facilities, which had an aggregate cash cost of
approximately $2.8 million.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $11.4 million, $8.8 million
and $9.1 million for fiscal 1998, 1997 and 1996, respectively. During the
fiscal year ended July 31, 1996, Copart acquired approximately 40 acres of
land at the Van Nuys facility for the purchase price of $10.5 million, for
which the Company paid $3.0 million in cash and issued the seller a promissory
note secured by the real property in the principal amount of $7.5 million,
payable interest only at the rate of 7.2% per annum, with the principal
payable in 5 years. Copart's capital expenditures have related primarily to
opening and operating facilities and acquiring software, yard and computer
equipment. Historically, while Copart has sub-contracted for a significant
portion of its vehicle transport services, the Company has implemented a
program for converting long haul transports to its own fleet of vehicle
carriers at each facility. Based upon the potential for increased revenues
from Company-owned vehicle towing services, the Company has entered into
agreements to acquire approximately $1.0 million of additional multi-vehicle
transport trucks and forklifts and is disposing of certain older equipment.
During fiscal 1998, the Company acquired approximately $13.1 million
of short-term investments. In fiscal 1998, 1997 and 1996, the Company
generated approximately $1.8, $2.4 and $0.6 million through the exercise of
stock options and warrants, respectively.
Cash and cash equivalents decreased by approximately $12.0 million
and increased by $14.7 million in fiscal 1998 and 1997, respectively. The
Company's liquidity and capital resources have not been materially affected by
inflation and are not subject to significant seasonal fluctuations.
The Company believes that its currently available cash, cash
generated from operations and borrowing availability under the Bank Credit
Facility and existing equipment leasing lines of credit will be sufficient to
satisfy the Company's working capital requirements and fund openings and
acquisitions of new facilities for the next 12 months.* However, there can be
no assurance that the Company will not be required to seek additional debt or
equity financing prior to such time, depending upon certain factors, including
the rate at which the Company opens or acquires new facilities.
- -------------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
25
<PAGE>
YEAR 2000 COMPLIANCE
The Company's critical business systems including CAS and general
ledger applications are Year 2000 compliant. Copart has relationships with
vendors, customers and other third parties that rely on software and systems
that may not be Year 2000 compliant. With respect to such third parties, Year
2000 compliance matters will not be within Copart's direct control. There can
be no assurance that Year 2000 compliance failures by such third parties will
not have a material adverse effect on the Company's results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and displaying comprehensive
income and its components. The statement is effective for fiscal years
beginning after December 15, 1997 and will be adopted by Copart, in fiscal
year 1999. This statement is not expected to have a material impact on
Copart's disclosures within the consolidated financial statements.
In 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which establishes standards for the way
that public business enterprises are to report information about operating
segments in the annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. The statement is effective for periods
beginning after December 15, 1997, and will be adopted by Copart, in fiscal
year 1999. This statement is not expected to have a material impact on
Copart's disclosures within the consolidated financial statements.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The SFAS establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The SFAS requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and
requires a company to formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999 and early adoption is
permitted. This statement is not expected to have a material impact on
Copart's results of operations.
In 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
is effective for fiscal years beginning after December 15, 1998 and earlier
adoption is permitted. The adoption of SOP No. 98-1 is not expected to have a
material impact on Copart's results of operations.
In 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP is effective for financial statements for
fiscal years beginning after December 15, 1998 and earlier adoption is
permitted. The adoption of SOP No. 98-5 is not expected to have a material
impact on Copart's results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 (a) for an index to the financial statements
and supplementary financial information which are attached thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this
Item is incorporated herein by reference from the Company's Proxy Statement
under the heading "Election of Directors."
Information regarding executive officers is included in Part I
hereof under the caption "Executive Officers of the Registrant" and is
incorporated by reference herein.
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended is incorporated herein by
reference from the Company's Proxy Statement under the heading "Election of
Directors - Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference from the Company's Proxy Statement under the heading "Election of
Directors-Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference from the Company's Proxy Statement under the heading "Election of
Directors-Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference from the Company's Proxy Statement under the heading "Certain
Transactions."
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this report:
Independent Auditors' Report........................................................... 32
Consolidated Balance Sheets at July 31,
1998 and 1997........................................................................ 33
Consolidated Statements of Income for the
three years ended July 31, 1998...................................................... 34
Consolidated Statements of Shareholders'
Equity for the three years ended
July 31, 1998........................................................................ 35
Consolidated Statements of Cash Flows for the
three years ended July 31, 1998...................................................... 36
Notes to Consolidated Financial Statements............................................. 38
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
II - Valuation and Qualifying Accounts................................................. 51
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
3. EXHIBITS
*3.1 Amended and Restated Articles of Incorporation of the Registrant
***3.2 Bylaws of the Registrant, as amended
***10.1+ Copart, Inc. 1992 Stock Option Plan, as amended
*10.2+ 1994 Employee Stock Purchase Plan, with form of Subscription
Agreement
*10.3+ 1994 Director Option Plan, with form of Subscription Agreement
*10.4 Indemnification Agreement, dated December 1, 1992, among the
Registrant and Willis J. Johnson, Reba J. Johnson, A. Jayson Adair,
Michael A. Seebode, Steven D. Cohan and Paul A. Styer
*10.5 Indemnification Agreement, dated July 1, 1993, between the
Registrant and Willis J. Johnson, Marvin L. Schmidt, James E.
Meeks and Steven D. Cohan
*10.6 Indemnification Agreement, dated November 9, 1993, between the
Registrant and James Grosfeld
*10.7 Form of Indemnification Agreement to be entered into by the
Registrant and each of Harold Blumentstein and Patrick Foley
*10.8+ Employment Contract for Chief Executive, dated February 17, 1993,
between Willis J. Johnson and the Registrant
*10.9+ Employment Contract, dated August 1, 1992, between A. Jayson Adair
and the Registrant
28
<PAGE>
*10.10+ Employment for Senior Executive, dated September 1, 1992, between
Paul A. Styer and the Registrant
*10.11 Employment Contract for Senior Executive, dated September 1, 1992,
between James E. Meeks and the Registrant
*10.12 Common Stock Warrant, dated November 9, 1993, issued to James
Grosfeld
***10.13 Credit Agreement among Copart, Inc. and Wells Fargo Bank, National
Association, U.S. Bank of California and Wells Fargo Bank, National
Association, as Agent, dated May 1, 1995
****10.14 Agreement for Purchase and Sale of Assets of NER Auction Systems,
dated January 13, 1995, among Registrant, the list of Sellers as
set forth therein, Richard A. Polidori, Gordon VanValkenberg, and
Stephen Powers
*****10.15 Contract of Sale by and between the Stroh Companies, Inc. as Seller
and Copart, Inc. as Purchaser, dated April 4, 1996
******10.16 Amended and Restated Credit Agreement among Copart, Inc. and Wells
Fargo Bank, National Association, U.S. Bank of California and Fleet
National Bank and Wells Fargo Bank, National Association, as Agent,
dated March 7, 1997
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (See page 30 of this Form 10-K)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
(c) See response to Item 14(a)(3) above.
(d) See response to Item 14(a)(2) above.
- -------------------------
* Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-1, as amended (File No. 33- 74250).
+ Denotes a compensation plan in which an executive officer participates.
*** Incorporated by reference from exhibit to registrant's Form 10-K for
its fiscal year ended July 31, 1995, filed with the Securities and
Exchange Commission.
**** Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-3, as amended (File No. 33- 91110) filed with the
Securities and Exchange Commission.
***** Incorporated by reference from exhibit to registrant's Form 10-K for
its fiscal year ended July 31, 1996, filed with the Securities and
Exchange Commission.
****** Incorporated by reference from exhibit to registrant's Form 10-K for
its fiscal year ended July 31, 1997, filed with the Securities and
Exchange Commission.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Registrant
COPART, INC.
October 1, 1998 BY: /s/ Willis J. Johnson
---------------------------
Willis J. Johnson
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Willis J. Johnson, as his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
30
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
--------- ------------------------ ----
<S> <C> <C>
/s/ Willis J. Johnson Chief Executive Officer October 1, 1998
---------------------- (Principal Executive Officer,
Willis J. Johnson and Director)
/s/ Wayne R. Hilty Senior Vice President and October 1, 1998
---------------------- Chief Financial Officer
Wayne R. Hilty (Principal Financial and
Accounting Officer)
/s/ A. Jayson Adair President October 1, 1998
---------------------- and Director
A. Jayson Adair
/s/ James E. Meeks Executive Vice President, October 1, 1998
---------------------- Chief Operating Officer and Director
James E. Meeks
/s/ James Grosfeld Director October 1, 1998
----------------------
James Grosfeld
/s/ Marvin L. Schmidt Senior Vice President October 1, 1998
---------------------- of Corporate Development
Marvin L. Schmidt and Director
/s/ Jonathan Vannini Director October 1, 1998
----------------------
Jonathan Vannini
/s/ Harold Blumenstein Director October 1, 1998
----------------------
Harold Blumenstein
</TABLE>
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Copart, Inc.:
We have audited the consolidated financial statements of Copart, Inc. and
subsidiaries as listed in Item 14(a). In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in Item 14(a). These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Copart,
Inc. and subsidiaries as of July 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year
period ended July 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
September 18, 1998
32
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, July 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,733,500 $ 27,684,500
Short-term investments 13,062,200 -
Accounts receivable, net 32,751,500 31,337,100
Vehicle pooling costs 9,399,700 9,101,200
Deferred income taxes 614,900 343,700
Prepaid expenses and other assets 3,426,600 2,825,200
--------------------- ---------------------
Total current assets 74,988,400 71,291,700
Property and equipment, net 37,562,300 30,651,300
Intangibles and other assets, net 78,391,400 73,396,500
--------------------- ---------------------
Total assets $ 190,942,100 $ 175,339,500
--------------------- ---------------------
--------------------- ---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 621,300 $ 1,938,800
Accounts payable and accrued liabilities 11,674,800 11,757,300
Deferred revenue 5,602,800 5,566,300
Income taxes payable - 83,200
Other current liabilities 2,260,800 3,016,100
--------------------- ---------------------
Total current liabilities 20,159,700 22,361,700
Deferred income taxes 1,122,000 975,200
Long-term debt, less current portion 7,804,100 7,814,200
Other liabilities 1,673,700 1,374,000
--------------------- ---------------------
Total liabilities 30,759,500 32,525,100
--------------------- ---------------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
13,275,060 and 13,071,111 shares issued and outstanding at
July 31, 1998 and 1997, respectively 113,202,600 111,050,600
Retained earnings 46,980,000 31,763,800
--------------------- ---------------------
Total shareholders' equity 160,182,600 142,814,400
--------------------- ---------------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 190,942,100 $ 175,339,500
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues:
Salvage fees $ 94,471,600 $ 86,533,900 $ 75,898,600
Transportation revenue 14,327,700 11,390,900 8,342,800
Purchased vehicle revenue 5,406,700 28,351,100 34,006,200
------------------- ------------------- -------------------
Total revenues 114,206,000 126,275,900 118,247,600
------------------- ------------------- -------------------
Operating costs and expenses:
Yard and fleet 71,546,900 89,393,500 83,541,800
General and administrative 11,306,600 10,566,100 10,907,500
Depreciation and amortization 7,844,900 7,463,300 5,996,700
------------------- ------------------- -------------------
Total operating expenses 90,698,400 107,422,900 100,446,000
------------------- ------------------- -------------------
Operating income 23,507,600 18,853,000 17,801,600
------------------- ------------------- -------------------
Other income (expense):
Interest expense (650,600) (826,100) (450,800)
Interest income 1,747,100 1,066,500 680,200
Other income 340,500 381,400 158,900
------------------- ------------------- -------------------
Total other income 1,437,000 621,800 388,300
------------------- ------------------- -------------------
Income before income taxes 24,944,600 19,474,800 18,189,900
Income taxes 9,728,400 7,482,200 7,004,500
------------------- ------------------- -------------------
Net income $ 15,216,200 $ 11,992,600 $ 11,185,400
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Basic net income per share $ 1.15 $ .93 $ .90
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Weighted average shares
outstanding 13,181,300 12,873,900 12,433,200
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Diluted net income per share $ 1.13 $ .90 $ .85
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Weighted average shares and dilutive
potential common shares outstanding 13,449,700 13,256,700 13,215,600
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
Outstanding Retained Shareholders'
shares Amount Earnings Equity
---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCES AT JULY 31, 1995 12,372,224 $ 104,529,800 $ 8,585,800 $ 113,115,600
Shares issued for acquisitions 288 6,200 - 6,200
Exercise of stock options 157,508 586,600 - 586,600
Exercise of warrants and
related tax benefit 87,431 860,300 - 860,300
Shares issued for Employee
Stock Purchase Plan 21,062 434,200 - 434,200
Shares issued for software 2,700 56,700 - 56,700
Net Income - - 11,185,400 11,185,400
---------------- -------------- ------------- --------------
BALANCES AT JULY 31, 1996 12,641,213 106,473,800 19,771,200 126,245,000
Exercise of stock options and
related tax benefit 45,400 1,147,000 - 1,147,000
Exercise of warrants and
related tax benefit 357,001 3,023,800 - 3,023,800
Shares issued for Employee
Stock Purchase Plan 27,497 406,000 - 406,000
Net Income - - 11,992,600 11,992,600
---------------- -------------- ------------- --------------
BALANCES AT JULY 31, 1997 13,071,111 111,050,600 31,763,800 142,814,400
Exercise of stock options and
related tax benefit 151,458 1,579,100 - 1,579,100
Exercise of warrants and
related tax benefit 32,223 223,600 - 223,600
Shares issued for Employee
Stock Purchase Plan 20,268 349,300 - 349,300
Net Income - - 15,216,200 15,216,200
---------------- -------------- ------------- --------------
BALANCES AT JULY 31, 1998 13,275,060 $ 113,202,600 $ 46,980,000 $ 160,182,600
---------------- -------------- ------------- --------------
---------------- -------------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
-------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,216,200 $ 11,992,600 $ 11,185,400
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,844,900 7,463,300 5,996,700
Deferred rent 299,700 404,300 991,200
Deferred income taxes (124,400) 399,600 (270,100)
Loss (gain) on sale of assets 100,600 (197,200) (62,300)
Employee Stock Purchase Plan compensation 52,400 101,400 91,600
Changes in operating assets and liabilities:
Accounts receivable (349,800) (827,500) (5,528,500)
Vehicle pooling costs 506,700 1,849,600 (570,800)
Prepaid expenses and other current assets (217,700) (580,000) (1,738,800)
Accounts payable and accrued liabilities (941,300) 1,352,900 820,000
Deferred revenue (450,100) (4,200) 248,000
Income taxes (83,200) 2,624,100 118,100
------------------ ------------------ ------------------
Net cash provided by operating activities 21,854,000 24,578,900 11,280,500
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (11,375,700) (8,828,300) (9,084,900)
Proceeds from sale of property and equipment 425,600 1,853,800 516,600
Purchase of short-term investments, net (13,062,200) - -
Other intangible asset additions (140,000) (222,700) (123,500)
Purchase of net current assets in connection with acquisitions (1,379,900) (839,900) (511,200)
Purchase of property and equipment in connection
with acquisitions (761,100) (466,600) (174,500)
Purchase of intangible assets in connection
with acquisitions (7,679,500) (2,130,700) (2,296,800)
Deferred preopening costs (604,200) (456,100) (714,700)
------------------ ------------------ ------------------
Net cash used in investing activities (34,577,000) (11,090,500) (12,389,000)
------------------ ------------------ ------------------
</TABLE>
CONTINUED ON NEXT PAGE
36
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
-------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 1,802,700 2,372,100 586,600
Proceeds from issuance of
Employee Stock Purchase Plan shares 296,900 304,600 342,600
Proceeds from issuance of notes payable 558,000 - -
Principal payments on notes payable (1,885,600) (1,506,800) (573,700)
------------------ ------------------ ------------------
Net cash provided by financing activities 772,000 1,169,900 355,500
------------------ ------------------ ------------------
Net (decrease) increase in cash and cash equivalents (11,951,000) 14,658,300 (753,000)
Cash and cash equivalents at beginning of period 27,684,500 13,026,200 13,779,200
------------------ ------------------ ------------------
Cash and cash equivalents at end of period $ 15,733,500 $ 27,684,500 $ 13,026,200
------------------ ------------------ ------------------
------------------ ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 650,600 $ 826,100 $ 450,800
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Income taxes paid $8,823,100 $4,864,900 $7,160,300
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATION ACTIVITIES
Copart, Inc. and its subsidiaries (the "Company") provide vehicle
suppliers with a full range of services to process and sell salvage vehicles.
The Company auctions salvage vehicles, which are either damaged vehicles deemed
a total loss for insurance or business purposes or are recovered stolen vehicles
for which an insurance settlement with the vehicle owner has already been made.
Gross proceeds generated from auctioned vehicles were approximately
$534,818,000, $537,657,000, and $506,916,000, for the years ended July 31, 1998,
1997 and 1996, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries. Significant intercompany transactions and
balances have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recorded at the date the vehicles are sold at auction.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Short-term investments at July 31, 1998 consist of corporate debt and
municipal bonds. The Company has classified its short-term investments as
available for sale. Available for sale securities are stated at market value and
unrealized holding gains and losses, net of the related tax effect, are excluded
from earnings and are reported as a separate component of shareholders' equity
until realized. Since the market value of short-term investments approximates
cost at July 31, 1998, net unrealized gains and losses on available for sale
securities for 1998 were not material.
VEHICLE POOLING COSTS
Vehicle pooling costs consist of labor, towing, outside services and
other costs directly attributable to the gathering and processing of vehicles
prior to their sale. Vehicle pooling costs are recognized as expenses in the
period the vehicle is sold at auction. The Company continually evaluates and
adjusts the components of vehicle pooling costs as necessary.
DEFERRED PREOPENING COSTS
Costs related to the opening of new auction facilities, such as
preopening payroll and various training expenses, are deferred until the auction
facilities open and are amortized over the subsequent 12 months. These costs are
included in prepaid expenses and other assets.
38
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation expense is provided on the straight-line method
over the estimated useful lives of the related assets, generally five to
nineteen years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease terms or the useful lives of the respective
assets.
INTANGIBLE ASSETS
Intangible assets consist primarily of covenants not to compete,
goodwill and options to purchase leased property. Amortization, except for the
options to purchase leased property, is provided on the straight-line method
over the estimated lives, which range from five to forty years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts recorded for financial instruments in the Company's
consolidated financial statements approximate fair value.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," during 1998. Accordingly, all prior
period net income per share amounts have been restated in accordance with this
standard.
Basic net income per share amounts were computed by dividing net income
by the weighted average number of common shares outstanding. Diluted net income
per share amounts were computed by dividing net income, adjusted for the effect
of assumed conversions, by the weighted average number of common shares
outstanding plus dilutive potential common shares calculated for stock options
and warrants outstanding using the treasury stock method. The adoption of this
accounting standard did not have a material effect on the Company's reported net
income per share amounts.
39
<PAGE>
ACCOUNTING FOR STOCK OPTIONS
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded only if the current market price of the underlying
stock exceeded the exercise price on the date of grant. The Company has adopted
SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma net income per share disclosures for employee stock option
grants made in fiscal 1996 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB No. 25 and provide pro forma disclosure provision
required by SFAS No. 123.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually evaluates the recoverability of its long-lived
assets by assessing whether the book value of the asset can be recovered through
expected and undiscounted cashflows.
(2) ACQUISITIONS
FISCAL 1998 TRANSACTIONS
During fiscal 1998 the Company had the following acquisitions: Central
Minnesota Salvage Center, of Avon, Minnesota; O'Neal's Equipment Sales, Inc., of
Columbia, South Carolina; Southern Salvage, Inc., of Mobile, Alabama; Auto
Storage Auction Pool, of San Diego, California; Mid Iowa Salvage Pool, Inc., of
Des Moines, Iowa and Auto Salvage Pools, Inc. and Auto Pool Auction, Inc., of
Detroit, Michigan. The consideration paid for these acquisitions consisted of
$9,820,500 in cash. The acquired net assets consisted of land, accounts and
advances receivable, inventory, fixed assets, goodwill and covenants not to
compete. The acquisitions were accounted for using the purchase method of
accounting, and the operating results subsequent to the acquisition dates are
included in the Company's consolidated statements of income. The excess of the
purchase price over fair market value of the net identifiable assets acquired of
$5,551,500 has been recorded as goodwill and is being amortized on a
straight-line basis over 40 years. In conjunction with the Avon, Minnesota;
Mobile, Alabama; San Diego, California; Des Moines, Iowa and Detroit, Michigan
acquisitions, the Company entered into leases for the use of these facilities.
40
<PAGE>
FISCAL 1997 TRANSACTIONS
During fiscal 1997 the Company had the following acquisitions: SALA
Insurance Salvage, Inc., of Baton Rouge, Louisiana and Western Affiliated
Salvage Pool and Auction of Salt Lake City, Utah. The consideration paid for
these acquisitions consisted of $3,437,200 in cash. The acquired net assets
consisted of accounts and advances receivable, inventory, fixed assets,
goodwill and covenants not to compete. The acquisitions were accounted for
using the purchase method of accounting, and the operating results subsequent
to the acquisition dates are included in the Company's consolidated
statements of income. The excess of the purchase price over fair market value
of the net identifiable assets acquired of $2,130,700 has been recorded as
goodwill and is being amortized on a straight-line basis over 40 years. In
conjunction with the Salt Lake City acquisition, the Company entered into a
lease for the use of the facility.
FISCAL 1996 TRANSACTIONS
During fiscal 1996 the Company had the following acquistions:
Mississippi Salvage Disposal Company, Inc., of Jackson, Mississippi and Sun
City Salvage Pool, Inc., of El Paso, Texas. The consideration paid for these
acquisitions consisted of $2,782,500 in cash. The Company also paid $200,000
for an option to purchase land. The acquired net assets consisted of accounts
and advances receivable, inventory, fixed assets, goodwill and covenants not
to compete. The acquisitions were accounted for using the purchase method of
accounting, and the operating results subsequent to the acquisition dates are
included in the Company's consolidated statements of income. The excess of
the purchase price over fair market value of the net identifiable assets
acquired of $1,746,800 has been recorded as goodwill and is being amortized
on a straight-line basis over 40 years. In conjunction with these
acquisitions, the Company entered into leases for the use of these
facilities. In addition, the Company paid $125,000 in June 1996 for
contingent consideration related to fiscal 1994 acquisitions.
The following unaudited pro forma financial information assumes the
1998 and 1997 acquisitions occurred at the beginning of fiscal 1997. These
results have been prepared for comparative purposes only and do not purport
to be indicative of what would have occurred had the acquisitions been made
at the beginning of fiscal 1997, or of the results which may occur in the
future.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $119,353,900 $135,437,500
------------ ------------
------------ ------------
Operating income $ 24,628,400 $ 20,793,200
------------ ------------
------------ ------------
Net income $ 15,630,900 $ 12,695,700
------------ ------------
------------ ------------
Basic net income per share $ 1.19 $ .99
------------ ------------
------------ ------------
Diluted net income per share $ 1.16 $ .96
------------ ------------
------------ ------------
</TABLE>
41
<PAGE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1998 1997
---- ----
<S> <C> <C>
Advance charges receivable $20,485,300 $20,272,600
Trade accounts receivable 11,100,200 10,274,500
Other receivables 1,551,000 889,000
----------- -----------
33,136,500 31,436,100
Less allowance for doubtful accounts 385,000 99,000
----------- -----------
$32,751,500 $31,337,100
----------- -----------
----------- -----------
</TABLE>
Advance charges receivable represents amounts paid to third parties on
behalf of insurance companies for which the Company will be reimbursed when the
vehicle is sold. Trade accounts receivable include fees to be collected from
insurance companies and buyers.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1998 1997
---- ----
<S> <C> <C>
Transportation and other equipment $ 9,620,300 $10,024,600
Office furniture and equipment 9,147,000 7,234,200
Land, buildings and leasehold improvements 32,040,100 23,135,200
----------- -----------
50,807,400 40,394,000
Less accumulated depreciation and amortization 13,245,100 9,742,700
----------- -----------
$37,562,300 $30,651,300
----------- -----------
----------- -----------
</TABLE>
Included in property and equipment as of July 31, 1998 and 1997, are
$1,488,000 and $939,100 respectively, of equipment under capital leases.
Accumulated amortization related to this equipment was $436,100 and $349,800 as
of July 31, 1998 and 1997, respectively.
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1998 1997
---- ----
<S> <C> <C>
Covenants not to compete $ 7,307,500 $ 5,212,500
Goodwill 77,968,700 72,244,000
Options to purchase leased property 3,455,000 3,455,000
Other 333,500 333,500
----------- -----------
89,064,700 81,245,000
Less accumulated amortization 10,673,300 7,848,500
----------- -----------
$78,391,400 $73,396,500
----------- -----------
----------- -----------
</TABLE>
42
<PAGE>
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1998 1997
---- ----
<S> <C> <C>
Trade accounts payable $ 900,200 $ 527,800
Accounts payable to insurance companies 8,054,200 8,392,500
Accrued payroll 1,731,000 1,789,300
Other accrued liabilities 989,400 1,047,700
----------- -----------
$11,674,800 $11,757,300
----------- -----------
----------- -----------
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31,
-------
1998 1997
---- ----
<S> <C> <C>
Note payable to a corporation, secured by land, payable in monthly interest
only installments of $45,000 through May 2001, when balance is due, bearing
interest at 7.2% $ 7,500,000 $ 7,500,000
Unsecured note payable to an individual, payable in monthly installments of
$33,000 through September 1997 when the balance becomes due, bearing
interest at 10% - 1,575,000
Notes payable under capital leases, secured by equipment, payable in monthly
installments of $1,600 to $34,800 through April 2001, bearing interest from
3.9% to 8.5% 725,700 500,500
Unsecured notes payable to individuals, payable in monthly installments of
$4,000 to $5,000 through February 2000, bearing interest from 10% to 12% 85,600 136,000
Notes payable to financial institutions, secured by equipment, payable in
monthly installments of $1,400 to $25,000 through November 1998, bearing
interest from 7.5% to 9.5% 114,100 41,500
------------- -----------
8,425,400 9,753,000
Less current portion 621,300 1,938,800
------------- -----------
$ 7,804,100 $ 7,814,200
------------- -----------
------------- -----------
</TABLE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JULY 31,
---------------------
<S> <C>
1999 $ 621,300
2000 246,900
2001 7,557,200
----------
$ 8,425,400
----------
----------
</TABLE>
43
<PAGE>
The Company has a bank credit facility provided by Wells Fargo Bank,
N.A., U.S. Bank of California and Fleet National Bank (the "Bank Credit
Facility"). The Bank Credit Facility consists of an unsecured revolving reducing
line of credit of $50 million, which matures in February 2002. The amount
available under the facility reduces by $10 million in February 2000 and 2001,
leaving the principal balance available as follows: March 1, 2000, $40 million
available; March 1, 2001, $30 million available; February 28, 2002, the line of
credit matures. Amounts outstanding under the Bank Credit Facility accrue
interest at either the prime rate most recently announced by Wells Fargo or at a
rate based on LIBOR plus a spread of 0.50%, subject to increases to a maximum
spread of 1.25% based on certain credit ratios. As of July 31, 1998, there are
no outstanding borrowings under this facility. The Company is subject to
customary covenants, including restrictions on payment of dividends, with which
it is in compliance.
(8) SHAREHOLDERS' EQUITY
The Company adopted the Copart, Inc. 1992 Stock Option Plan (the
"Plan") as amended, presently covering 1,500,000 shares of the Company's Common
Stock. The Plan provides for the grant of incentive stock options to employees
and non-qualified stock options to employees, officers, directors and
consultants at prices not less than 100% and 85% of the fair market value for
incentive and non-qualified stock options, respectively, as determined by the
Board of Directors at the grant date. Incentive and non-qualified stock options
may have terms of up to ten years and vest over periods determined by the Board
of Directors. Options generally vest ratably over a two or five year period.
In March 1994, the Company adopted the Copart, Inc. 1994 Director
Option Plan under which 40,000 shares of the Company's common stock are
presently reserved. In general, new non-employee directors will automatically
receive grants of non-qualified stock options to purchase 3,000 shares and
subsequent grants to purchase 1,500 shares at specified intervals.
The Company has authorized the issuance of 5,000,000 shares of
preferred stock, no par value, none of which are issued at July 31, 1998.
The Copart, Inc. Employee Stock Purchase Plan (the "ESPP") provides for
the purchase of up to 170,000 shares of Common Stock of the Company by employees
pursuant to the terms of the ESPP. Shares of Common Stock issued pursuant to the
ESPP during fiscal 1998, 1997 and 1996 were 20,268, 27,497 and 21,062,
respectively. Additional compensation expense of $52,400, $101,400 and $91,600
was recognized in fiscal 1998, 1997, and 1996, respectively.
44
<PAGE>
Pro forma information regarding net income and net income per share
is required by SFAS No. 123, and has been determined as if the Company had
accounted for the Plans under the fair value method. The fair value of options
issued under the Plans was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions: no dividend yield,
volatility factor of the expected market price of the Company's stock of .60, a
forfeiture rate of .05, a weighted-average expected life of the options of five
years and a risk-free interest rate of 5.8%, 6.6% and 6.7% for 1998, 1997 and
1996, respectively. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options vesting period.
The Company's pro forma net income and net income per common share would
approximate the following:
<TABLE>
<CAPTION>
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Year Ended July 31, 1998:
Net Income $15,216,200 $14,772,300
----------- -----------
----------- -----------
Basic Net Income per share $ 1.15 $ 1.12
----------- -----------
----------- -----------
Diluted Net Income per share $ 1.13 $ 1.10
----------- -----------
----------- -----------
Year Ended July 31, 1997:
Net Income $11,992,600 $11,867,300
----------- -----------
----------- -----------
Basic Net Income per share $ .93 $ .92
----------- -----------
----------- -----------
Diluted Net Income per share $ .90 $ .90
----------- -----------
----------- -----------
Year Ended July 31, 1996:
Net Income $11,185,400 $11,179,400
----------- -----------
----------- -----------
Basic Net Income per share $.90 $.90
----------- -----------
----------- -----------
Diluted Net Income per share $.85 $.85
----------- -----------
----------- -----------
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996. A summary of stock option activity for the years ended July 31, 1998, 1997
and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- ----
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 755,775 $ 8.95 845,500 $ 9.16 889,400 $ 7.62
Granted 283,000 17.30 - - 149,000 13.48
Exercised (151,458) 5.45 (45,400) 5.42 (157,500) 3.76
Cancelled (29,167) 10.23 (44,325) 16.47 (35,400) 12.80
--------- --------- ---------
Outstanding at year end 858,150 12.28 755,775 8.95 845,500 9.16
--------- --------- ---------
--------- --------- ---------
Options exercisable at year end 447,367 8.51 505,525 6.64 389,283 5.76
Weighted average fair value of
options granted during the year: $ 9.83 $ - $ 8.49
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
45
<PAGE>
A summary of stock option activity for the year ended July 31, 1998 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices July 31,1998 Life Price July 31, 1998 Price
------ ------------- ----- ------ -------------- -----
<S> <C> <C> <C> <C> <C>
1.00 - 2.00 204,000 4.30 $ 1.80 204,000 $ 1.80
12.00 - 16.00 303,900 7.40 12.77 176,867 12.26
17.00 - 23.44 350,250 8.04 17.95 66,500 19.13
------- -------
858,150 7.37 $ 12.28 447,367 $ 8.51
------- -------
------- -------
</TABLE>
9) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Years ended July 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $8,888,100 $6,390,300 $6,362,400
Deferred (112,200) 359,400 (233,800)
---------- ---------- ----------
8,775,900 6,749,700 6,128,600
---------- ---------- ----------
State:
Current 964,700 692,300 912,200
Deferred (12,200) 40,200 (36,300)
---------- ---------- ----------
952,500 732,500 875,900
---------- ---------- ----------
$9,728,400 $7,482,200 $7,004,500
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The reconciliation between the amount computed by applying the U.S. federal
statutory tax rate of 34% to income before income taxes and the actual income
tax expense follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate 34% 34% 34%
State income taxes, net of federal income tax benefit 4 3 4
Amortization of goodwill 1 1 1
---- ---- ----
39% 38% 39%
---- ---- ----
---- ---- ----
</TABLE>
46
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
July 31,
-------------------------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable $ 179,400 $ -
Accrued vacation 97,800 108,300
State taxes 337,700 235,400
Depreciation 726,300 182,100
----------- -----------
Total gross deferred tax assets 1,341,200 525,800
----------- -----------
Deferred tax liabilities:
Amortization of intangible assets (1,848,300) (1,157,300)
----------- -----------
Total gross deferred tax liabilities (1,848,300) (1,157,300)
----------- -----------
Net deferred tax liability $ (507,100) $ (631,500)
----------- -----------
----------- -----------
</TABLE>
In fiscal 1998 and 1997, the Company recognized a tax benefit of
$977,200 and $1,798,700, respectively, upon the exercise of certain stock
warrants and options.
(10) NET INCOME PER SHARE
There were no adjustments to net income in calculating diluted net
income per share. The table below reconciles basic weighted shares outstanding
to diluted weighted average shares outstanding:
<TABLE>
<CAPTION>
Years ending July 31,
----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic weighted shares outstanding 13,181,300 12,873,900 12,433,200
Stock options and warrants outstanding 268,400 382,800 782,400
------------ ----------- -----------
Diluted weighted average shares outstanding 13,449,700 13,256,700 13,215,600
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
(11) MAJOR CUSTOMERS
One customer accounted for 16% of revenue in fiscal 1998, 1997, and
1996, respectively. No other customer accounted for more than 10% of revenues.
No buyer of auto salvage accounted for more than 1% of gross proceeds in any
period.
47
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES
LEASES:
The Company leases certain facilities under operating leases and has
either a right of first refusal to acquire or option to purchase certain
facilities at fair value. Facilities rental expense for the years ended July 31,
1998, 1997 and 1996 aggregated, $6,967,800, $6,223,300 and $5,536,400,
respectively.
The Company has operating leasing lines with certain financial
institutions of approximately $10,100,000 for the purpose of leasing yard and
fleet equipment of which approximately $6,300,000 was available as of July 31,
1998.
Noncancelable future minimum lease payments under capital and operating
leases with initial or remaining lease terms in excess of one year at July 31,
1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING JULY 31, LEASES LEASES
- --------------------- ------ ------
<S> <C> <C>
1999 $500,600 $11,542,600
2000 209,700 11,404,900
2001 58,700 10,183,500
2002 -- 7,707,500
2003 -- 6,486,900
Thereafter -- 9,681,400
-------- -----------
769,000 $57,006,800
-----------
-----------
Less amount representing interest 43,300
--------
$725,700
--------
--------
</TABLE>
COMMITMENT:
The Company has entered into agreements to acquire approximately $1.0
million of multi-vehicle transport trucks and forklifts.
CONTINGENCIES:
The Company is subject to legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, any ultimate
liability with respect to these actions will not materially affect the financial
position, results of operations or cash flows of the Company.
(13) RELATED PARTY TRANSACTIONS
The Company leases certain of its facilities from affiliates of the
Company under lease agreements. Rental payments under these leases aggregated
$398,200, $388,800 and $1,517,900 for the years ended July 31, 1998, 1997 and
1996, respectively, and expire on various dates through 2005.
An affiliate provided $608,400, $565,500 and $559,800 of tow services
to the Company in fiscal 1998, 1997 and 1996, respectively.
48
<PAGE>
(14) NONCASH FINANCING AND INVESTING ACTIVITIES
In fiscal 1998, 1997 and 1996, 36,396, 54,140 and 94,607 warrants were
exercised in a non-cash transaction, which resulted in the issuance of 32,223,
46,953 and 87,431 shares of common stock, respectively.
In fiscal 1996, 2,700 shares, valued at $56,700, were issued to an
outside consultant for services rendered in connection with the development of
computer software. In addition, 288 shares of common stock were issued as
contingent consideration related to the acquisition of the St. Louis facility.
In fiscal 1996, the Company acquired (i) $62,900 of intangible assets
through the issuance of common stock, and (ii) $599,800 of tangible assets
through the issuance of notes payable in connection with capital leases. In
addition, in fiscal 1996, the Company acquired real property for the purchase
price of $10.5 million of which $3 million was paid in cash, and $7.5 million
was paid through the issuance of a note payable.
(15) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER
--------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C>
1998
Revenues $ 27,490,800 $ 26,173,700 $ 30,568,700 $ 29,972,800 $ 114,206,000
--------------- -------------- -------------- ---------------- ------------
--------------- -------------- -------------- ---------------- ------------
Operating income $ 4,814,600 $ 5,382,200 $ 6,650,100 $ 6,660,700 $ 23,507,600
--------------- -------------- -------------- ---------------- ------------
--------------- -------------- -------------- ---------------- ------------
Net income $ 3,140,100 $ 3,453,000 $ 4,302,500 $ 4,320,600 $ 15,216,200
--------------- -------------- -------------- ---------------- ------------
--------------- -------------- -------------- ---------------- ------------
Basic net income per share $ .24 $ .26 $ .33 $ .33 $ 1.15
--------------- -------------- -------------- ---------------- ------------
--------------- -------------- -------------- ---------------- ------------
Diluted net income per share $ .23 $ .26 $ .32 $ .32 $ 1.13
--------------- -------------- -------------- ---------------- ------------
--------------- -------------- -------------- ---------------- ------------
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1997
Revenues $ 32,517,100 $ 30,364,500 $ 33,806,800 $ 29,587,500 $126,275,900
--------------- -------------- -------------- --------------- ------------
--------------- -------------- -------------- --------------- ------------
Operating income $ 3,835,500 $ 4,955,300 $ 5,304,900 $ 4,757,300 $ 18,853,000
--------------- -------------- -------------- --------------- ------------
--------------- -------------- -------------- --------------- ------------
Net income $ 2,336,800 $ 3,011,600 $ 3,298,000 $ 3,346,200 $ 11,992,600
--------------- -------------- -------------- --------------- ------------
--------------- -------------- -------------- --------------- ------------
Basic net income per share $ .19 $ .23 $ .25 $ .26 $ .93
--------------- -------------- -------------- --------------- ------------
--------------- -------------- -------------- --------------- ------------
Diluted net income per share $ .18 $ .23 $ .25 $ .25 $ .90
--------------- -------------- -------------- --------------- ------------
--------------- -------------- -------------- --------------- ------------
</TABLE>
49
<PAGE>
FORM 10-K
- ---------
The Company will provide, without charge to each Shareholder, upon written
request a copy of its Form 10-K as required to be filed with the Securities &
Exchange Commission pursuant to rule 13a-1, under the Securities Exchange Act of
1934. Your written request should be directed to: Chief Financial Officer,
Copart, Inc.
ANNUAL MEETING
- --------------
The Annual meeting of Shareholders will be held at
5500 E. Second Street, Benicia, California 94510 at 9:00 a.m.
December 8, 1998.
50
<PAGE>
SCHEDULE II
COPART, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT CHARGED TO COSTS APPLICATIONS TO BALANCE AT
DESCRIPTION AND YEAR BEGINNING OF YEAR AND EXPENSES BAD DEBT END OF YEAR
-------------------- ----------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Reserve for doubtful accounts:
July 31, 1998 $99,000 $374,000 $(88,000) $385,000
------- -------- --------- --------
------- -------- --------- --------
July 31, 1997 $99,000 $ 96,300 $(96,300) $99,000
------- -------- --------- --------
------- -------- --------- --------
July 31, 1996 $99,000 $ - $ - $99,000
------- -------- --------- --------
------- -------- --------- --------
</TABLE>
51
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Copart, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-81238) on Form S-8 of Copart, Inc. of our report dated September 18, 1998,
relating to the consolidated balance sheets of Copart, Inc. and subsidiaries
as of July 31, 1998, and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended July 31, 1998, and related schedule, which report
appears in the July 31, 1998, annual report on Form 10-K of Copart, Inc.
KPMG Peat Marwick LLP
San Francisco, California
October 9, 1998
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COPART, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> JUL-31-1997
<PERIOD-END> JUL-31-1998
<CASH> 15,733,500
<SECURITIES> 13,062,200
<RECEIVABLES> 32,751,500
<ALLOWANCES> 385,000
<INVENTORY> 0
<CURRENT-ASSETS> 74,988,400
<PP&E> 50,807,400
<DEPRECIATION> 13,245,100
<TOTAL-ASSETS> 190,942,100
<CURRENT-LIABILITIES> 20,159,700
<BONDS> 0
0
0
<COMMON> 113,202,600
<OTHER-SE> 46,980,000
<TOTAL-LIABILITY-AND-EQUITY> 190,942,100
<SALES> 114,206,000
<TOTAL-REVENUES> 114,206,000
<CGS> 0
<TOTAL-COSTS> 90,698,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 650,600
<INCOME-PRETAX> 24,944,600
<INCOME-TAX> 9,728,400
<INCOME-CONTINUING> 15,216,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,216,200
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.13
</TABLE>
